MMISSIONS 


& 


-.V      TTTl 


IDRICK 


QUESTIONS   OF   THE   DAY. 

(The  numbers  omitted  represent  Monographs  no  longer  in  print.) 

9 — The  Destructive  Influence  of  the  Tariff  upon  Manufacture  and 
Commerce,    and   the   Figures  and   Facts   Relating  thereto. 

By  J.  SCHOENHOF.     Octavo,  cloth,  75  cents;  paper        .         .         40 

14T— "  The  Jukes."  A  Study  in  Crime,  Pauperism,  Disease,  and  Heredity. 
By  R.  L.  DUGDALE.      Octavo,  cloth i  00 

20 — The  Progress  of  the  Working  Classes  in  the  Last  Half 
Century.     By  Robt.  Giffen    Paper 25 

23— Social  Economy.     By  J.  E.  Thorold  Rogers.     Octavo,  cloth,    75 

24— The  History  of  the  Surplus  Revenue  of  1837.  By  Edv^ard  G. 
Bourne.     Octavo,  cloth         ,         .         .        .         .         .         .     i  25 

25 — The  American  Caucus  System.  By  George  W.  Lawton. 
Octavo,  cloth,  1.00 ;  paper     .         .         .         .         .  .         .         50 

28— The  Postulates  of  English  Political  Economy.  By  Walter 
Bagehot.     Octavo,  cloth       .         .         .         .         .         .         .     i  00 

30— The  Industrial  Situation.     By  J.  Schoenhof.     Octavo,  cloth,  i  00 

35 — Unwise  Lav7S.     By  Lewis  H.  Blair.     Octavo,  cloth     .         .     i  00 

36 — Railway  Practice.     By  E.  Porter  Alexander.     Octavo,  cloth.  75 

37 — American  State  Constitutions :  A  Study  of  their  Growth.  By 
Henry  Hitchcock,  LL.D.     Octavo,  cloth  ....         75 

38— The  Inter-State  Commerce  Act :  An  Analysis  of  its  Provisions. 
By  John  R.  Dos  Pasos.     Octavo,  cloth         .      '  .         .         .     i  25 

29_FederaI  Taxation  and  State  Expenses  ;  or.  An  Analysis  of  a 
County  Tax-List.     By  W.  H.  Jones.     Octavo,  cloth      .         .     i  00 

40— The  Margin  of  Profits.  By  Edward  Atkinson.  Together  with 
the  Reply  of  E.  M.  Chamberlain,  Representing  the  Labor  Union, 
and  Mr.  Atkinson's  Rejoinder.     Cloth,  75  cents;  paper  .  40 

43 — Slav  or  Saxon:  A  Study  of  the  Growth  and  Tendencies  of  Russian 
Civilization.  By  Wm.  D.  Foulke,  A.M.  New  revised  edition. 
Octavo,  cloth  .         .' I   00 

47_The  Tariff  History  of  the  United  States.  By  F.  W.  Taussig. 
Revised,  and  with  additional  material.     Octavo      .         .         .     i  25 


QUESTIONS   OF    THE   DAY. 

S3— The  Tariff  and  its  Evils  ;  or,  Protection  which  does  not  Protect. 
By  JciiiN  H.  Allkn.     Octavo,  cloth i  oo 

54— Relation  of  the  Tariff  to  Wages.  By  David  A.  Wells.  Octavo, 
paper 20 

58— Politics  as  a  Duty  and  as  a  Career.  By  Moorfield  Storey. 
Octavo,  paper         •••......         2"; 

59— Monopolies  and  the  People.  By  Chas.  W.  Baker.  Octavo, 
cloth.      New  edition  with  new  material   .  .  .  .  .      i   25 

60— The  Public  Regulation  of  Railways.  By  W.  D.  Daijney, 
Octavo   ...........     I   25 

62— American  Farms  :  Their  Condition  and  Future.  By  J.  R.  Elliott. 
Octavo    .........  .      I   21; 

63— Want  and  Wealth.     By  E.  J.  Shriver.     Paper    ...         25 

64— The  Question  of  Ships.  By  Wells  and  Codman  Paper  .  25 
Mercantile  Marine;  Its  Cause  and  its  Cure.  By  David  A.  Wells  ; 
and  Shipping  Subsidies  and  Bounties.     By  John  Codman. 

65— A  Tariff  Primer.  The  Effects  of  Protection  upon  the  Farmer  and 
I-aborer.     By  Hon.  Porter  Sherman.     Paper      ...         25 

66— The  Death  Penalty.  A  Consideration  of  the  Objections  to  Capital 
Punishment.    By  Andrew  J.  Palm.    New  edition  in  preparation 

67— The  Question  of  Copyright.     Edited  by  G.  H.  Putnam  175 

68— Parties  and  Patronage.  By  Lyon  G.  Tyler,  President  William 
and  Mary  College  .  .  .  .  .  .  .  _  .      i  00 

70— The  Question  of  Silver.  Revised  edition.  By  Louis  R.  Ehrich. 
Paper,  40  cents ;  cloth    .         .         .  .         .         .         .         _         yc 

71— Who  Pays  Your  Taxes?  By  David  A.  Wells,  Thomas  G. 
Shearman  and  others.     Edited  by  Bolton  Hall  .         .     i  25 

72 — The  Farmer's  Tariff  Manual.     By  D.  Strange   .         .         .     r  2s 

73— The  Economy  of  High  Wages.  By  J.  Schoenhof,  author  of 
"  The  Industrial  Situation,"  etc.      Octavo,  cloth     .  .  .      i   50 

74— The  Silver  Situation  in  the  United  States.  By  Prof.  F.  W. 
Taussig.     Revi'-cd  edition.     Octavo      ■         ....         75 


3 


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^/LylCr^^  £<JrA^  f^y  //"Y. 


RAILWAY   CONTROL 

BY 

COMMISSIONS 


BY 


FRANK   HENDRICK 

RICARDO    PRIZE    FELLOW    IN    HARVARD    UNIVERSITY 


G.  P.  PUTNAM'S  SONS 
NEW  YORK  &  LONDON 
Cbe  IRnicf^erbocl^er  press 

1900 


Copyright,  igoo 

BV 

FRANK   HENDRICK 


:hc  TRnkfteibocFJcr  press.  IRcw  HJorh 


1051 


CONTENTS 

CHAPTER 

I — Introduction  .... 

II — Railway  Regulation  in  France 

_    III — Railway  Regulation  in  Italy 

IV — Railway  Regulation  in  Austria 

V — Railway  Regulation  in  Belgium 

VI — Railway  Regulation  in  Germany 

-Railway  Regulation  in  England 

-Railway  Regulation  in  the  United 
States   ....... 

-The  Railway  Regulation  of  the  Mass- 
achusetts Commission  as  a  Guide  to 
American  Railway  Control 

Switzerland  and  the  State  Purchase 
OF  Railways.         ..... 


VII- 
VIII- 


^      IX- 


o 


5»  -X. — 


PAGE 
1 

.  8 
26 

35 

44 
50 
63 

92 


140 


^-  1  ^,Sf^d 


RAILWAY  CONTROL  BY 
COMMISSIONS 


CHAPTER  I 

INTRODUCTION 

FEW  institutions  in  the  life  of  civilized  nations 
are  of  more  universal  interest  than  the  rail- 
ways, and  there  is  certainly  no  branch  of  govern- 
mental or  individual  service,  whether  public  or 
quasi-public,  which  interests  so  many  persons  in  so 
many  different  and  conflicting  ways.  In  the  present 
epoch  of  the  history  of  railroading  the  attempt  is 
being  made  to  conciliate  conflicting  interests  and  to 
arbitrate  them  when  they  cannot  be  brought  to- 
gether. The  direction  of  this  effort  has  been  that 
of  a  more  thorough  recognition  of  the  public  char- 
acter of  the  railway  service,  and  has  been  toward  an 
efficient  public  control.  The  forms  which  the  rela- 
tion of  the  state  to  the  railways  has  taken  in  different 
countries  have  varied  greatly.  In  some  countries 
the  state  has  ended  by  owning  the  roads,  in  others, 
ownership  has  been  coupled  with  operation,  not  by 
the  government,  but  by  companies.     These  systems 


2        Railway  Control  by  Commissions 

are  prevalent  in  Continental  Europe,  where  the 
government  is  rather  administrative  than  legislative, 
where,  also,  the  strong  arm  of  government  is  accus- 
tomed to  reach  into  the  province  of  industrial  enter- 
prise. In  the  United  States  and  England,  however, 
the  state  has  refrained  from  interfering,  to  any  de- 
gree, in  the  operation  of  railways,  preferring  to  leave 
risk,  responsibility,  and  profit  to  private  enterprise. 
Yet  in  recent  years  the  relation  of  state  and  railways 
has  become  closer.  It  has  often  taken  the  shape  of 
a  commission,  advising,  supervising,  or  controlling 
railways  in  the  public  interest.  The  commissions 
have  sometimes  been  temporarily  appointed  for  a 
special  purpose,  sometimes  permanent,  to  meet  gen- 
'Cral  objects  and  whatever  contingencies  may  arise. 
Sometimes  the  commission  has  had  much  power, 
acting  alone  or  in  co-operaton  with  other  means  of 
control ;  at  other  times  it  has  been  vested  with  no 
arbitrary  power,  and  has  performed  its  functions 
with  no  aid  from  government,  and  with  little  de- 
pendence upon  it.  In  the  last  form  of  commission 
Massachusetts  was  the  pioneer,  in  1869.  It  is  the 
purpose  of  this  paper  to  illustrate  the  workings  of 
the  various  methods  of  control.  The  conclusion 
will  be  reached  that  where  its  application  is  possible 
the  commission  system  is  best ;  that  in  some  coun- 
tries it  is  not  possible ;  that  of  the  various  forms  of 
commission,  the  permanent  commission  without 
power  is  the  best,  but  that  under  certain  conditions 
the  temporary  possession  of  arbitrary  power  must 
take  the  place  of  the  weak  weapons  of  publicity 
.and    persuasion ;    that,    finally,    the    experience    of 


Introduction  3 

Massachusetts  has  been  that  of  the  best  means  of 
control  under  the  best  circumstances. 

One  could  scarcely  understand  the  commission 
system  of  the  United  States  from  the  experience  of 
the  several  State  commissions  and  the  Interstate 
Commerce  Commission.  Apart  from  the  fact  that 
many  of  the  ideas  which  the  pioneer  state  in  railway 
regulation  gave  to  the  country  were  borrowed  in 
turn  from  England  and  Continental  Europe,  a  just 
appreciation  of  the  importance  of  the  circumstances 
and  the  surroundings  in  which  the  means  of  regu- 
lation operates  is  impossible  without  a  knowledge 
of  the  various  solutions  of  railroad  questions  under 
different  political  conditions.  Comparison  and 
contrast  of  motives  and  actions  is  the  only  effect- 
ive way  of  learning.  Of  inconsistencies  of  con- 
trol the  history  of  railway  regulation  in  Europe  is 
full. 

It  is  the  plan,  then,  of  this  paper  to  present  the 
experience  in  railway  regulation  of  the  countries  of 
Western  Europe :  France,  Italy,  Austria,  Belgium, 
Germany ;  then  to  examine  the  experience  of  Eng- 
land. In  the  light  of  the  information  thus  gained 
the  experience  of  the  United  States  will  be  pre- 
sented. The  Massachusetts  Commission  will  be 
discussed  as  to  its  work,  merits,  and  influence,  and 
conclusions  will  be  drawn  from  the  discussion. 

Perhaps  the  advantage  of  observing  European 
experience  in  order  to  understand  what  are  the 
difficulties  which  the  railway  problem  presents  to 
our  form  of  government  will  appear  from  the  ex- 
amination of  a  few  questions  chosen  from  different 


4       Railway  Control  by  Commissions 

countries.  It  is  said,  for  example,  that  the  real 
cause  of  the  defeat  of  the  French  in  the  Franco- 
Prussian  War  arose  out  of  the  strained  relations 
existing  throughout  the  campaign  between  the 
French  army  officers  and  the  railway  staff.  A  fail- 
ure to  communicate  caused  all  the  sidings  and  main 
lines  in  the  neighborhood  of  Metz,  and  the  lines 
leading  to  the  locomotive  sheds,  to  be  blocked  up 
with  loaded  wagons.' 

To  take  an  instance  from  England.  In  1881,  it 
was  asserted,  before  a  committee  of  the  House  of 
Commons,  that  American  beef  and  cereals  were 
carried  from  the  seaboard  at  rates  that  rendered 
hopeless  all  competition  by  English  growers  of 
breadstuffs  and  English  breeders  of  cattle;  that  the 
railway  companies  were  by  their  rates  augmenting 
the  agricultural  charges — then  so  great — imposed 
by  the  government. 

To  come  nearer  home,  the  day  before  Christmas, 
1896,  a  strike  was  declared  by  the  employes  of  the 
West  End  Street  Railway  Company,  a  corporation 
having  exclusive  right  to  use  the  streets  of  Boston 
for  street  railways.  All  means  of  transportation  be- 
tween the  city  and  the  outlying  districts  was  re- 
moved. Great  crowds  of  buyers  were  kept  at  home. 
Many  were  left  by  the  sudden  withdrawal  of  the 
street-car  service  to  make  their  way  home  with  their 
purchases  as  best  they  could.  The  public  health 
was  endangered,  and  thousands  of  dollars  were  lost 

'  Geo.  Findlay,  on  "  English  Railways,"  p.  277.  Quoted  from 
Jiussian  Military  Magazine.  "  Railway  Systems  in  Europe,"  by 
Simon  Sterne,  in  Sen.  Misc.  Doc.,  1886-7,  vol.  ii.,  No.  66,  p.  14. 


Introduction  5 

by  merchants  who  had  made  preparation  for  exten- 
sive hohday  sales. 

It  is,  on  the  one  hand,  to  protect  the  public  from 
culpably  poor  service,  unjust  charges,  and  the  con- 
sequences of  financial  mismanagement,  that  govern- 
ments have  attempted  public  regulation.  On  the 
other  hand,  the  motive  has  been  to  make  the  roads 
useful  not  only  to  the  general  public,  but  to  the 
government  itself,  and  the  railways  have  everywhere 
come  to  be  looked  upon  as  developers  of  industry. 
In  Europe  close  relations  have  existed  between  the 
railways  and  the  government,  most  countries  taking 
the  initiative  in  their  construction.'  France  treated 
her  railways  as  she  treated  her  banks,  now  granting 
concessions,  now  restricting  them,  now  assuming 
charge,  now  allowing  others  to  control  under  close 
government  superintendence.  Italy,  after  experi- 
ence with  private  ownership,  took  the  roads  over 
and  leased  them  to  private  companies.  Austria, 
Sweden,  Portugal,  Russia,  Switzerland,  and  Spain 
have  adopted  a  system  of  state  roads  running  in 
competition  with  private  roads.  Belgium  com- 
menced with  this  system,  but  the  government  now 
owns  almost  all  the  roads.  She  controls  them 
through  a  department  as  we  do  our  post-office.  In 
Prussia,  Bavaria,  Wurtemburg,  and  most  of  the 
other  German  states,  nearly  all  the  railways  have 
been  acquired  by  the  government,  and  are  worked 
as  a  department   of  state.'      England   began  with 

'  C.  F.  Adams,  /Railways,  their  Origin  and  Problems. 
*  Findlay,  220  ff.    La  Grande  Encyclope'die,\o\.  x.,  p.   102S,  art. 
Chemins  de  Fer. 


6        Railway  Control  by  Commissions 

practically  unrestrained  competition,  but  the  gov- 
ernment and  the  roads  have  worked  toward  each 
other  until  pretty  rigid  control  has  been  reached. 
In  the  United  States  the  roads  were  neither  regu- 
lated nor  interfered  with  until  the  seventies,  when 
State  commissions  began  to  be  established.  The 
commission  had  two  forms.  In  the  Western  States 
the  power  to  fix  rates  was  given,  and  public  inter- 
ference was  impulsive  and,  perhaps,  not  cautiously 
directed.  In  the  older  communities  of  the  East 
this  sort  of  interference  was  not  called  for.  The 
commission  with  power  "  to  listen,  to  investigate, 
to  study,  and  to  report  "  was  the  only  means  of 
control.  Of  the  advisory  commission,  that  ap- 
pointed in  Massachusetts  in  1869  is  the  pioneer  and 
the  type.  "  The  fundamental  idea  was  publicity. 
The  commission  was  to  represent  public  opinion  and 
to  direct  it."  After  1870  State  commissions  de- 
veloped on  two  lines,  the  one  led  to  the  "  commis- 
sion with  power,"  or  regulative  commission,  the 
other  to  the  "  commission  without  power,"  or  the 
advisory  commission.'  The  tendency  has  been  to 
bring  the  various  State  commissions  into  co-opera- 
tion.' In  this  work  the  Massachusetts  Commission 
took  a  leading  part.  In  1887  an  attempt  was  made 
to  render  this  co-operation  more  effective  by  the 
passing  of  an  Act  of  Congress  to  regulate  interstate 
traffic,  providing  for  the  appointment  of  the  Inter- 
state Commerce  Commission.     The  work  of  these 

'  Clark,  State  Raihvay  Commissions.     Pub.  American  Ec.  Associ- 
ation, vi.,  27. 
*  Adams,  138-g. 


Introduction  7 

commissions,  independently  and  in  co-operation, 
represents  the  sum  total  of  American  control.  In 
England  the  companies  have  developed  a  system  of 
control  and  co-operation,  through  the  Railway  Clear- 
ing-House,  which  gives  steadiness  and  uniformity  to 
railway  service  in  that  country,  without  removing 
the  benefits  of  competition.  Attempts  at  such 
combination  have  been  made  in  this  country,  but 
they  have  been  declared  illegal.  It  is  believed  that 
this  is  to  be  regretted,  that  the  work  of  public  regu- 
lation would  be  rendered  more  efficient  if  the  efforts 
of  the  railways  were  enlisted.  Upon  this  question 
the  following  pages  will  throw  some  light,  for  much 
in  the  experience  of  European  countries  bears  upon 
this  critical  point.  They  will  be  taken  up  in  order, 
beginning  with  that  of  France. 


CHAPTER  II 

RAILWAY    REGULATION   IN   FRANCE 

THE  history  of  French  railways  reproduces  in 
miniature  the  vicissitudes  and  inconsistencies 
which  mark  the  political  history  of  France  in  the 
nineteenth  century;  it  ofTers  extremely  interesting 
illustrations  of  the  perplexities  which  state  interfer- 
ence may  cause.  In  the  beginning  of  railway  activ- 
ity, from  1825  to  1835,  French  statesmen  believed 
that  railways  would  never  play  a  serious  part  in  the 
industry  of  the  country.'  The  first  grants  of  roads 
were  made  in  perpetuity.  But  in  1832,  when  the 
company  from  St.  Etienne  to  Lyons  substituted 
locomotives  for  horses,  and  to  her  freight  cars  car- 
riages fitted  for  passengers,  the  engineers  who  sup- 
posed that  France  would  always  rely  upon  her 
excellent  highways  had  a  premonition  of  the  revo- 
lution that  was  coming,  and  obtained  the  passage 
of  two  railway  laws.  They  were  dated  April  26 
and  June  19,  1833,  and  marked  the  starting-point 
of  the  complex  mass  of  French  railway  legislation. 
They  declared,  first,  that  concessions  to  railways 
should  be  made  only  by  legislative  enactment; 
secondly,  the  charter  should  not  exceed  a  period  of 
ninety-nine  years;   thirdly,   the  state  reserved  the 

'  Sterne,  42. 
8 


Railway  Regulation  in  France        9 

right  to  manage  and  superintend  the  railways,  to 
fix  maximum  charges,  not  to  be  changed  or  exceeded 
without  express  authority  from  the  government; 
and,  fourthly,  at  the  expiration  of  the  grant  the 
government  was  to  become  the  owner  of  the  lines 
so  granted.  Almost  at  the  beginning  France  passed 
far-sighted  railway  laws.  In  comparing  her  experi- 
ence with  ours,  we  should  remember  that  we  had  no 
legislation  that  covered  more  than  the  immediate 
present,  and  absolutely  no  preventive  legislation. 
We  were  not  interested  in  giving  out  territory  in 
such  a  way  as  to  prevent  too  many  railways  from 
being  built;  our  only  object  was  to  get  enough  rail- 
ways. When,  in  1870,  the  fruits  of  this  neglect  were 
being  reaped,  many  districts  already  had  too  many 
roads.  To  be  sure,  the  laws  of  1833  ^o  not  specify 
a  restriction  of  territory  or  monopoly,  but  they  do 
put  the  power  of  deciding  into  the  hands  of  the 
•  government,  and  public  interest  was  bound  closely 
with  that  of  the  companies.  It  is  also  remarkable 
that  these  laws  have  not  suffered  serious  change, 
and  remain  the  basis  of  the  relation  between  France 
and  its  railways  to-day.' 

Already  in  1833  the  railway  laws  spoke  in  no  un- 
certain tone,  but  it  remained  for  circumstances  to 
shape  the  practice  and  give  the  law  its  spirit.  Octo- 
ber 28,  1837,  a  special  commission  was  appointed  to 
report  whether  it  was  better  for  the  government 
to  undertake  the  construction  and  operation  of 
railways,  or  to  leave  it  to  private  initiative.     The 

'  Kdmond  Thery,  llistoire  des  Crandes  Compagnies,  pp.  1-2. 
Paris,  1S95. 


lo      Railway  Control  by  Commissions 

commission  did  not  commit  itself.  The  members 
favored  a  division  of  the  territory  between  individuals 
and  the  state,  they  favored  the  right  of  purchase 
by  the  state,  but  concluded  against  operation  by 
the  state.  The  question  of  state  ownership  and 
management  has  always  been  agitated  in  France  as 
a  general  issue.  It  has  never  been  answered  as 
such,  but  the  agitation  has  been  responded  to  as  cir- 
cumstances and  political  expediency  permitted.     In 

1838,  for  example,  when  the  Ministry  proposed  the 
construction  of  lines  from  Paris  to  Rouen,  from 
Rouen  to  Dieppe,  from  Paris  to  Orleans,  and  from 
Lille  to  Dunkerque,  by  the  government,  the  Cham- 
ber voted  to  leave  the  work  to  private  enterprise. 

It  happened,  however,  that,  owing  to  the  crisis  of 

1839,  private  enterprise  was  not  in  a  condition  to 
construct  five  hundred  miles  of  railway  on  its  own 
credit.  Ideas  were  prevailing  at  that  time  which 
strengthened  the  unwillingness  of  private  enterprise. 
First,  considering  the  condition  of  industry,  com- 
merce, and  public  finance,  the  construction  of  a  rail- 
way was  a  gigantic  undertaking;  secondly,  the  idea 
of  combining  national  capital  and  credit  with  private 
capital  and  credit  in  such  a  way  as  to  strengthen 
both  is  so  deeply  rooted  in  the  French  conception 
of  public  finance  as  to  amount  almost  to  patriotism. 
A  new  phase  was  added  to  the  relation  between 
state  and  railways.  Grants  were  modified  to-  suit 
the  companies,  and  the  Orleans  Company,  the  first 
to  apply  for  the  government's  credit,  was  given  the 
nation's  guarantee  of  an  interest  of  3  per  cent,  and 
a  sinking-fund  increase  of  i  per  cent,  during  the  first 


Railway  Regulation  in  France       n 

forty-six  years  of  its  enterprise.  This  new  policy 
has  had  most  important  results,  not  the  least  of 
which  is  to  complicate  the  arithmetic  of  the  French 
budget. 

Another  special  commission  was  appointed  in 
1840  to  report  a  fixed  plan  for  the  construction, 
operation,  and  regulation  of  railways.  This  com- 
mission was  as  non-committal  as  its  predecessor 
upon  the  point  of  government  ownership.  They 
favored  a  mixed  system  for  the  present.  "  No 
one,"  they  said,  "  can  give  permanence  to  any  rule. 
Circumstances  must  decide."  On  the  question  of 
guarantees  the  commission  was  emphatic ;  they  an- 
swered it  in  the  affirmative  once  and  for  all.  The 
arguments  they  used  are  interesting  as  illustrating 
not  only  the  French  railway  policy,  but  the  nation's 
financial  policy  in  relation  to  all  branches,  from  the 
Bank  of  France  to  the  Post-Office  Savings  Banks. 
This,  they  said,  was  the  best  way  to  encourage  the 
investment  of  small  amounts,  and  to  develop  the 
spirit  of  association  for  national  undertakings,  group- 
ing them  about  enterprises  destined  to  increase  the 
industrial  resources  of  the  country.  This  guarantee, 
moreover,  would  remedy  the  abuses  which  had 
driven  the  investors  of  small  savings  from  railway 
enterprises,  protecting  railway  bonds  from  the  sud- 
den changes  in  value  which  had  made  the  fortunes 
of  speculators.  This  policy  in  France  is  sound  and 
statesmanlike.  Thanks  to  it,  the  railways  have 
been  pushed  to  completion  much  faster  than  pri- 
vate or  government  capital  working  alone  would 
have  done,  and,  thanks  to  it,  the  credit  of  the  state 


12      Railway  Control  by  Commissions 

has  always  been  strengthened  by  its  ability  to  ap- 
peal in  the  hour  of  need  to  the  patriotism  and  thrift 
of  the  peasants  and  the  g'ens  du  peuple.^ 

Another  patch  was  added  to  the  complex  fabric 
of  French  railways  by  the  law  of  1842.  It  provided, 
in  the  first  place,  for  the  construction  of  a  system  of 
main  lines  radiating  from  Paris  to  the  Belgian,  the 
German,  the  Swiss,  and  the  Spanish  frontiers,  to 
England,  to  the  Mediterranean,  a  plan  of  construc- 
tion which  underlies  the  present  main  network  and 
laid  the  foundation  of  the  admirably  organized 
system  of  France.  In  the  second  place,  the  law 
provided  for  the  management  and  construction  of 
the  roads.  It  was  another  compromise.  The  gov- 
ernment was  to  furnish  the  lands,  the  road-beds,  and 
the  stations;  to  the  companies  it  was  left  to  furnish 
the  superstructure  and  the  rolling  stock,  and  to 
operate  the  road.  In  order  not  to  irritate  the 
Chambers,  which  were  openly  hostile  to  state  opera- 
tion, the  roadway  was  to  be  turned  over  as  soon  as 
finished  to  those  companies  which  should  agree  to 
return  the  lines  to  the  state  in  the  shortest  period  of 
time.  The  length  of  the  lease — the  average  length 
being  about  thirty-six  years — determined  the  period 
for  which  the  maximum  tariff  could  be  collected. 
At  the  expiration  of  the  lease  the  roads  were  to 
become  public  property,  and  the  state  was  to  buy 
out  the  buildings  and  the  rolling  stock. 

In  this  project  were  involved  2500  kilometres, 
375,000,000  francs  for  which  coming  from  the  state, 
315,000,000  francs  from  private  sources,  two  thirds 

'  See  Thery,  14-16. 


Railway  Regulation  in  France    ,  13 

of  the  necessary  land  being  the  free  gift  of  the  com- 
munes.' But  in  1848  a  new  complication  was  intro- 
duced, and  the  state  was  obliged  to  adopt  a  new 
policy.  The  work  on  the  new  lines  had  been  pushed 
rapidly,  but  the  financial  crisis  of  1848  put  a  stop  to 
the  construction  of  four  lines.  The  line  from  Paris 
to  Lyons  the  state  found  it  advisable  to  purchase.^ 
The  situation  in  1851  was  this:  There  had  been 
granted  in  all  3910  kilometres.  Of  these  3546  were 
in  operation,  583  kilometres  being  operated  by  the 
government,  the  rest  being  divided  among  twenty- 
seven  different  companies.^ 

In  1 85 1  Louis  Napoleon  became  Emperor  Na- 
poleon in.  From  this  time  dated  efforts  to  give  to 
this  complicated  system  of  lines  that  simplicity  and 
symmetry  which  characterize  their  organization  to- 
day. The  first  and  most  important  measure  of  the 
Emperor  looked  in  this  direction.  Its  object  was 
to  conciliate  the  money  power.  He  grouped  all  the 
roads  into  six  territorial  divisions,  each  under  the 
control  of  a  company;  he  extended  the  date  of  re- 
acquisition  by  the  state  from  the  short  time  originally 
agreed  upon  to  a  period  of  ninety-nine  years.  The 
companies  thus  provided  for  and  the  dates  of  expira- 
tion were  as  follows: 

CoMPAGNiE.  Expiration  of  Lease. 

du  Nord 1950 

d'Orleans 1956 

'  Thery,  p.  17.     J.  S.  Jeans,  Railway  Problems,  77. 
'Simon  Sterne,  "  Railway  Systems  in  Europe,"  Sen.  Misc.  Doc, 
1886-7,  vol.  ii..  No.  66,  p.  21. 

^  La  Grande  Encyclop^die,  x.,  1026,  1527. 


14      Railway  Control  by  Commissions 

CoMPAGNiE.  Expiration  of  Lease. 

de  I'Est 1954 

de  rOuest 1956 

du  Midi i960 

Paris,  Lyon,  et  Mediterranee i959 

One  thousand  kilometres  remained  in  the  hands  of 
eight  minor  companies.' 

The  next  step  toward  uniformity  came  with  the 
extension  of  the  railways  into  poorly  paying  terri- 
tory. This  is  interesting  as  an  attempt  to  solve  one 
of  the  knottiest  of  railway  problems.  The  method 
was  as  follows:  Railways  were  divided  into  two 
classes.  The  first  consisted  of  roads  constructed 
previous  to  1857 ;  they  were  called  the  ancien  resean. 
The  second  class  was  to  consist  of  roads  projected 
later;  they  were  to  be  called  the  nouveau  resean. 
The  two  classes  were  to  be  treated  difTerently.  The 
act  which  regulated  this  was  called  the  "  Conven- 
tions of  1859."  It  provided  for  the  construction  of 
18,500  kilometres  of  new  lines.  For  a  period  of 
fifty  years,  dating  from  1865,  a  guarantee  of  interest 
of  4-j^^o-  per  cent,  was  to  be  made  to  the  companies 
undertaking  the  new  roads.  This  was  i  per  cent, 
more  than  the  same  companies  were  guaranteed  on 
the  older  roads.  These  advances  were  to  be  repaid 
with  interest  at  4  per  cent,  as  soon  as  the  profits  of 
the  new  network  should  exceed  the  guarantee. 
Further,  all  profit  in  excess  of  8  per  cent,  on  the 
old  network  was  to  be  carried  to  the  new  and  less 
productive  roads.     The  plan  was  to  make  the  old 

'  Sterne,  211.        Thery,  29-46.        Encyclop/die,  1527. 


Railway  Regulation  in  France       15 

roads  support  the  new,  to  make  those  who  were 
enjoying  the  monopoly  of  the  old  roads  assume  the 
burdens  of  the  new.  The  stock  of  the  old  roads 
became  obligations  for  the  new.' 

This  arrangement  was  less  advantageous  to  the 
six  great  companies  than  the  former  one.  Yet  they 
had  been  granted  a  virtual  monopoly  on  the  old 
roads,  and  they  showed  their  power.  They  showed, 
moreover,  and  very  clearly,  the  disadvantages  of 
government  aid,  interference,  and  responsibility. 
The  first  is  a  failure  of  the  roads  to  respond  to  the 
needs  of  trade  and  their  inertia  in  the  matter  of 
opening  up  new  territory.  In  1863  immense  terri- 
tory in  the  west,  southwest,  and  central  regions  of 
France  was  utterly  disregarded  by  the  companies. 
All  the  lines  which  had  been  constructed  in  France 
were  through  lines.  Local  needs  were  so  neglected 
that  a  special  law  was  passed  in  1865  providing  for 
a  system  of  local  lines.  The  proposal  for  these  lines 
did  not,  by  any  means,  come  from  the  companies; 
the  lead  had  to  be  taken  by  the  communes  and 
chambers  of  commerce  in  the  cities.  Nor  did  the 
roads  second  the  urgent  appeal  for  local  accommo- 
dations. They  asserted  that  they  were  unable  to 
furnish  them.  As  a  matter  of  fact,  the  old  lines 
planned  in  1842  were  now  paying  a  dividend  upon 
stock,  as  well  as  interest  upon  bonded  indebtedness. 
Yet,  since  they  could  not  make  a  profit  at  once 
upon  the  new  network,  the  government  was  obliged 
to  aid  the  construction  by  a  guarantee  of  interest 
and  a  sinking-fund  guarantee  of  about  f  per  cent. 

'  See  Thery,  50-9. 


1 6      Railway  Control  by  Commissions 

The  same  arrangement  was  made  for  repayment  as 
in  the  case  of  the  noiiveaii  resean.  When  a  certain 
rate  should  be  earned  on  the  old  lines  (this  was  set 
at  from  19,500  francs  to  380,000  francs  per  mile  on 
different  railways)  the  surplus  should  be  devoted  to 
the  payment  of  interest  on  the  new  lines.  Thus  we 
find  the  state,  owing  to  its  interference  with  free 
initiative,  obliged  to  undertake  all  ways  of  commu- 
nication which  cannot  be  made  of  themselves  to  pay 
a  profit. 

This  is  a  disadvantage,"  some  say,  "  but  it  is 
more  than  balanced  by  the  fact  that  the  govern- 
ment, having  control  of  construction,  will  see  to  it 
that  no  unnecessary  lines  are  constructed."  This 
argument  we  should  expect  to  hold  particularly  in 
so  highly  centralized  a  country  as  France.  But  in 
France  the  very  opposite  was  true,  and  this  is  the 
second  disadvantage  of  the  interference  of  the  gov- 
ernment. The  local  feeders  to  the  main  lines  could 
not,  in  the  nature  of  things,  do  more  than  meet  very 
limited  needs.  Yet  through  local  pride  and  other 
causes  they  were  constructed  at  nearly  as  great 
expense  as  the  main  lines,  and  through  political 
intrigue  and  a  desire  for  speculation  they  were 
turned  from  their  natural  and  primary  purpose  and 
brought  into  competition  with  the  main  lines.  The 
immediate  result  of  this  was  very  disastrous  to  the 
national  budget,  and  not  at  all  elevating  to  the  tone 
of  national  polities';  the  final  result  was  the  forced 
assumption  of  these  lines  by  the  state.'' 

The  third   disadvantage  was  that  the  state  was 

'  Thery,  60.  "^  Encyclope'die,  1027. 


Railway  Regulation  in  France       17 

obliged  to  aid  the  roads  which  were  paying  profits 
to  private  enterprise,  and  to  run  at  a  loss  or  without 
profit  all  poorer  roads.  Two  systems  of  state  rail- 
way had  come  into  existence  since  1865,  the  one  the 
unprofitable  secondary  lines,  the  other  the  local  lines 
just  mentioned. 

"  Those  left  to  the  state  were  detached  systems  con- 
nected with  the  main  lines  at  remote  points.  The  state 
was  under  a  constant  disadvantage  in  the  operation  of 
these  roads,  as  the  main  lines  subjected  the  state  lines  to 
many  indirect  disadvantages  in  rates  and  facilities.  Thus 
from  time  to  time  the  companies  forced  concessions  from 
the  state,  and  exacted  the  leasing  of  the  more  productive 
feeders  to  the  companies  operating  the  main  lines  of 
rail."  ' 

The  War  of  1870,  which  marked  a  new  era  in 
French  railway  construction,  shows  in  an  extreme 
form'the  great  disadvantage  of  government  interfer- 
ence and  responsibility.  The  companies  seized  a 
national  crisis,  not  as  an  opportunity  to  perform  a 
patriotic  duty,  but  as  a  rare  chance  to  prey  upon 
the  public.  The  railways  responded  miserably  to 
the  needs  of  the  campaign  in  the  transport  of  troops. 
The  speculators,  who  were  endeavoring  to  enlist  the 
populace  in  the  scheme  of  building  the  local  lines  up 
into  main  lines  to  compete  with  the  systems  radia- 
ting from  Paris,  seized  upon  this  as  fuel  for  the 
popular  rage  against  the  "  great  monopolies."  * 
Speculation  in  the  local  lines  provided  for  by  the 
Act  of  1865  became  a  mania.     It  has  passed  into 

'  Sterne,  23.  '  Thery,  64. 


i8      Railway  Control  by  Commissions 

history  in  connection  with  the  name  of  its  daring 
leader,  the  Dutch  plunger  Phillipart.'  To  save 
themselves  from  ruin,  the  great  capitalists  who  were 
interested  in  the  main  lines  formed  a  powerful  com- 
bination. The  most  prominent  members  were  the 
Rothschilds,  who  are  the  owners  of  the  majority  of 
the  stock  in  the  French  railways.  The  combination 
succeeded  in  bringing  Phillipart  to  ruin,  and  put  an 
end  to  the  mania,  not  from  a  sense  of  duty,  not  be- 
cause they  wanted  the  local  lines — they  were  worth- 
less.  The  stockholders  threw  themselves  upon 
the  state,  and,  naturally,  the  state  had  to  bear  the 
burden.  Thus  the  great  companies  pursued  their 
own  interest  and  the  weak  burdened  the  state; 
whichever  way  the  government  turned  embarrass- 
ment was  heaped  upon  the  budget. 

People  began  to  think  it  was  time  for  the  state  to 
have  some  say  in  the  enterprise  which  was  costing 
her  so  much.  After  the  cession  of  the  roads  of 
Alsace-Lorraine  in  1872,  a  commission  was  ap- 
pointed to  report  upon  the  matter.  It  recom- 
mended that  all  the  roads  be  placed  under  direct 
orders  of  the  Minister  of  War.  The  purpose  of  this 
was  to  ensure  an  efHcient  transport  service  in  time 
of  war,  A  further  step  was  taken  by  the  Act  of 
1877.  It  prescribed  a  military  organization  of  the 
railways,  and  that  the  railway  servants  should  be 
trained  theoretically  and  practically  for  the  war  ser- 
vice.    This  plan  has  been  followed  out.' 

This  law  started  an  agitation  in  favor  of  state 
ownership.'      No    less    prominent    an    orator   than 

'Adams,  io6.  'Thery,  65.  'Sterne,  23. 


Railway  Regulation  in  France       19 

Gambetta  talked  of  "  clipping  the  wings  of  the 
magnates."  The  Ministry,  which  has  generally- 
been  in  favor  of  state  ownership,  provided  in  1879, 
by  a  ministerial  decree,  that  in  the  years  from  1879 
to  1888  no  less  than  10,000  miles  of  lines  should  be 
constructed  and  equipped  by  the  state,  to  cost,  it 
was  estimated,  4,000,000,000  francs.  But  the  great 
companies  had  become  too  strong.  Down  to  1881 
the  credit  of  the  French  Government  was  better 
than  that  of  the  railways.  The  crisis  in  the  winter 
of  that  year  forced  the  government  to  admit  that 
its  resources  for  taxation  were  not  adequate  to  the 
execution  of  the  project  of  1878.  The  great  com- 
panies took  advantage  of  the  weakness  of  the 
government,  and  forced  it  to  surrender  the  lines 
constructed  since  1879.  Upon  these  lines  a  con- 
siderable part  of  the  total  estimated  cost  had  been 
expended.  They  were  now  to  be  operated  by  the 
great  companies  during  the  period  of  their  other 
leases,  and  substantially  without  repayment  of  the 
expenditure  for  original  construction.  Thus  again 
the  government  was  balked  in  an  attempt  to  com- 
pete with  the  great  companies. 

The  "  Conventions  of  1883,"  which  were  to  regu- 
late the  companies  in  their  new  relations  with  the 
state,  are  the  last  important  expression  of  the  gov- 
ernment's policy.  We  may,  then,  sum  up  here  the 
situation  as  it  now  appears.  The  exact  position  of 
the  road  is  not  only  obscure,  but  it  is  uncertain. 
Judging  from  past  experience,  this  obscurity  will 
lend  strength  to  the  great  companies.  The  leases 
and  concessions  are  to  expire  in  1950,  the  guarantees 


20      Railway  Control  by  Commissions 

of  interest  are  obligatory  until  1914.  "  No  one 
can  predict  whether  they  will  terminate  then. 
Up  to  1895,  the  great  companies  had  received 
from  the  state  22,800,000,000  francs."  These  pay- 
ments were  necessary  to  make  sure  that  roads  would 
be  run  at  all.  While  the  companies  are  all  solvent 
at  the  present  time,  the  course  of  French  politics, 
the  uncertainty  of  finance,  and  the  power  of  the 
railways  are  such  that  assumption  by  the  state  may 
become  necessary  at  any  time. 

"  In  all,  the  great  companies  operate  about  20,000 
miles  of  lines.  The  responsibilities  of  the  government 
for  them  are  very  burdensome;  the  interest  guaran- 
tees are  the  most  important  cause  of  the  embarrassment 
of  the  French  Treasury."  '  "It  has  been  aptly  said  that 
France  has  made  the  railways,  not  altogether  her  servant, 
but  in  large  part  her  master."  ^ 

We  have  seen  that  France  has  suffered  in  some 
ways  by  her  interference  in  railway  construction. 
Now,  we  may  ask,  what  has  she  gained  ? 

First,  she  has  avoided  waste.  It  seems  as  if  there 
has  been  less  capital  expended  in  France  for  the 
duplication  of  roads  than  in  any  other  nation  in  the 
world.  Excepting  the  feeble  attempt  at  competition 
in  1 87 1,  there  has  been  practically  none.  "  From 
the  time  of  its  organization  in  1842  to  the  present 
time,  the  railway  system  was  based  upon  the  fact 
that  Paris  was  the  central  point  of  France.  All  the 
main  lines  radiated  from  Paris,  each  with  a  particu- 
lar field  to  serve,  and  guaranteed  in  the  possession 

'  Thery,  165,  179,  208,  217,  220.  'Sterne,  24-5. 


Railway  Regulation  in  France       21 

of  that  field.  France  has,  therefore,  notwithstand- 
ing the  comparatively  small  mileage  to  a  given 
amount  of  population,  the  most  complete  service  at 
the  least  cost  of  original  outlay  of  any  nation  in 
Europe.  For,  while  the  French  railways  have  cost 
a  considerable  amount  of  money  per  mile,  "  there  is 
substantially  no  unnecessary  duplication  of  mileage 
anywhere  in  France."  ' 

From  this,  and  the  identification  of  the  govern- 
ment's interest  with  that  of  the  roads,  arises  a  second 
advantage.  It  is  the  steadiness  of  railway  invest- 
ments. The  importance  of  this  is  easily  lost  sight 
of,  but  those  who  are  accustomed  to  the  wild  fluctua- 
tions of  American  railway  bonds  and  the  frauds  per- 
petrated upon  investors  should  be  able  to  appreciate 
it.  Even  in  the  isolated  instance  of  competition, 
investors  were  not  disregarded.  "  After  the  war 
and  in  numerous  other  crises  the  credit  of  the  state 
and  that  of  the  companies  have  lent  one  another 
very  substantial  support."  Investors  on  a  small 
scale  are  well  protected  and  might  stake  their  all  in 
railway  stock.  "  In  spite  of  the  great  number  of 
securities  thrown  upon  the  market  in  the  period  from 
1 87 1  to  1876,  not  only  did  the  stocks  of  the  com- 
panies maintain  a  high  quotation,  but  in  1876  the 
average  closing  was  appreciably  higher  than  that  of 
the  year  1869."*  The  advantage  to  one  class  in 
France,  the  investors,  is  well  secured. 

The  third  advantage  is  also  one  of  steadiness.  It 
comes  to  the  shippers  in  the  shape  of  uniform  rates 
not  subject  to  the  fluctuations  of  what  we  know  as 

'  Sterne,  28.  ^  Thery,  69-71. 


2  2      Railway  Control  by  Commissions 

rate  wars.  Immunity  from  competition  makes  dis- 
crimination unnecessary.  The  only  difficulty  is  in 
getting  low  rates,  as  "  the  companies  have  the  initi- 
ative, the  governmental  administration  the  veto  in 
changes  of  rates."  '  To  cause  a  change  of  rate  is 
not  easy,  but  between  low  rates  and  steady  rates  the 
latter  should  be  chosen.  That  the  French  think  so 
is  shown  by  the  quotation  which  follows  : 

"  The  relations  between  the  community  in  France  and 
its  railroad  system  are  reasonably  satisfactory.^  In- 
deed, those  managing  the  railways  look  with  simple 
astonishment  on  the  wild  fluctuations  in  the  railroad 
tariffs  incident  to  the  American  method  of  operation. 
They  do  not  hesitate  to  say  that  if  similar  outrages  were 
perpetrated  on  the  French  people  and  business  public 
by  the  railways,  the  question  of  state  ownership  of  the 
'railways  would  immediately  assume  a  new  shape."  ' 

The  fourth  advantage  is  an  economic  one.  It 
goes  far  to  balance  the  losses,  both  political  and 
pecuniary,  which  the  state  has  brought  upon  herself 
by  her  policy  of  interference.  First,  an  indirect 
benefit  has  been  received,  a  benefit  over  and  above 
what  the  government  would  have  received  if  the 
railways  had  been  left  to  private  initiative.  The 
construction  of  railways  in  a  country  where,  on 
account  of  the  excellence  of  the  highways  and 
waterways,  they  would  not  naturally  find  a  rapid 
extension,  was  hastened  by  the  interference  of  the 
government.  "  Not  only  did  the  government  re- 
ceive   taxes   from   the   railways  ;    its   resources   for 

'  A.  T.  Hadley,  Railway  Transportation,  201. 
^Sterne,  25.  .  ^  Adams,  108. 


Railway  Regulation  in  France 


-  j 


taxation  were  wonderfully  increased  by  the  rapid 
augmentation  of  taxable  value  which  a  thousand 
forms  of  property  take  wherever  a  railway  pene- 
trates." '  Further,  a  very  tangible  direct  benefit 
has  been  received.  The  French  Government  is  in 
a  large  degree  administrative.  In  all  departments 
of  administration  the  saving  in  transportation  ac- 
counts is  very  large.  For  the  Department  of  Post 
and  Telegraphs  the  railway  service  is  free;  sailors, 
soldiers,  and  munitions  of  war  are  transported  with- 
out charge;  and  tobacco,  in  which  the  government 
has  a  monopoly,  costs  the  government  nothing  for 
freight.  Add  to  this  the  advantage  of  a  railway 
corps  trained  for  war,  and  the  direct  money  saving 
is  not  slight.  "  For  transportation  alone  the  savings 
of  the  government  for  the  year  of  1890  were  esti- 
mated at  124,543,907  francs,  or  more  than  $24,000,- 
000.  But  we  allow  for  the  fact  that  these  are  the 
figures  of  the  companies."  * 

To  sum  the  case  up  for  and  against  the  French 
system,  we  may  say  that  the  roads  were  built 
quickly,  economically,  and  well ;  that  the  service  is 
efficient,  and  that  no  roads  were  built  which  would 
not  have  to  be  built.  While  it  is  clear  that  many 
errors  were  avoided,  we  must  admit  that  the  political 
experience  of  the  state  has  not  been  creditable  or 
glorious.  What  would  have  happened  if  the  roads 
were  left  entirely  to  private  enterprise  we  do  not 
know,  but  it  is  plain  that  in  the  management  of  the 
railways  the  connection  between  the  roads  and  the 
government  is  now  so  close  that  nothing  could  be 
'  Thery,  210.  '^  Ibid.,  211. 


24      Railway  Control  by  Commissions 

gained  from  state  management.  The  roads  are 
organized  in  accordance  with  a  ministerial  decree. 
The  directors  are  under  the  orders  of  the  Minister 
of  Public  Works,  and  are  members  of  the  "  General 
Commission  for  the  Management  of  Railways." 
Thus  the  railways  are  managed  by  an  administrative 
government  commission  composed  of  the  Minister 
of  Public  Works,  the  directors  of  the  company,  the 
inspectors  of  railway  finance,  and  the  commissaries 
general  of  the  roads.  The  commission  meets  at  the 
call  of  the  Minister  to  discuss  matters  of  railway 
policy,  and  they  publish  a  report  of  their  findings. 

The  matter  of  rates,  which  is  so  important  in  this 
country,  is  of  minor  importance  in  France. 

"  To  reduce  rates  is  not  a  part  of  the  commission's 
work;  indeed,  there  can  be  but  little  doubt  that  the 
general  effect  of  the  system  has  been  to  prevent  the  re- 
duction of  rates.  The  question  of  local  discriminations 
and  competition  in  rates,  as  we  know  it  in  America,  is 
unknown  in  France."  ' 

The  method  of  dealing  with  rates  is  as  follows. 
All  changes  come  from  the  companies,  and  are  re- 
quired to  be  submitted  within  one  month  after 
adoption  to  all  the  chambers  of  commerce  in  the 
country.  Proposals  by  the  roads  must  thus  first  be 
submitted  to  very  rigid  and  representative  criticism. 
It  is  then  submitted  to  the  commission  to  be  ac- 
cepted or  rejected  as  they  decide.  If  the  change  is 
accepted,  it  cannot  go  into  effect  until  one  month 
after    publication.       If    it    is   vetoed,  there   is   no 

'  Hadley,  201. 


Railway  Regulation  in  France       25 

alternative  but  to  withdraw  the  proposal.  The  Min- 
istry may  even  propose  a  change  as  a  substitute  for 
the  railways'  proposal,  but  the  railways  have  a  choice 
between  accepting  the  proposal  of  the  commission 
and  withdrawing  their  own  proposal,  thus  leaving 
the  old  tariffs  untouched.'  It  is  thus  seen  to  be 
very  difficult  to  disturb  the  rates.  Indeed,  on  ac- 
count of  its  own  interest  in  the  roads  the  govern- 
ment is,  in  some  degree,  not  anxious  for  changes. 
Indeed,  the  thought  of  making  the  roads  as  useful  to 
industry  as  possible  is  not  uppermost  in  the  minds 
of  the  French  people  or  their  statesmen.  Let  the 
credit  of  the  roads  be  good,  so  that  it  may  aid  the 
national  credit,  let  the  investment  of  small  amounts 
in  the  railways  be  safe,  let  the  lines  be  ever  ready  to 
despatch  troops  to  the  frontier,  and  the  desideratum 
is  attained.  In  short,  "  railroad  transportation  in 
France  is  treated  from  the  financial  and  political 
standpoint  rather  than  from  the  industrial."  *  With 
us  the  industrial  side  has  been  the  most  prominent; 
financial  security  and  political  expediency  have  been 
neglected. 

'Sterne,  26.     Encyclopedic,  xii.,  840,  "Art.  Controle."     Findlay, 
236. 

'  Hadley,  201. 


CHAPTER  III 

RAILWAY    REGULATION    IN    ITALY 

NO  country  has  had  an  experience  with  railways 
more  worthy  of  study  than  Italy.  The  lessons 
are  the  same  as  those  of  France,  but  in  France  the 
significance  of  a  change  of  policy  was  obscured  by 
many  and  complex  political  considerations,  and  it 
will  not  do  to  draw  conclusions.'  The  working  of 
government  control  in  Italy  has  not  only  been 
clear,  but  it  has  been  brought  into  relief  by  the  con- 
trast of  the  various  systems  she  has  tried,  one  with 
another.  The  roads  were  first  in  private  hands, 
were  bought  by  the  government,  and,  later,  leased 
to  private  companies.  Each  change  was  well  con- 
sidered, and  the  reasons  are  apparent.  The  commis- 
sion system  was  tried  in  Italy,  and  the  arguments 
for  and  against  receive  a  perfect  illustration  from  its 
experience. 

The  railway  history  of  Italy  may  be  divided  into 
four  periods.  The  first,  1 859-1 866,  was  that  of  the 
extension  and  consolidation  of  the  roads  by  private 
enterprise  with  aid  from  the  government.  The 
second,  1 866-1879,  was  one  of  guarantees  of  in- 
terest to  private  companies,  in  imitation  of  the 
French  system,  and  state  construction  of  roads  to 

'  Hadley,  20I. 
26 


Railway  Regulation  in  Italy        27 

compete  with  the  private  lines  she  was  supporting: 
in  the  third,  1879-1885,  the  state  owned  and  oper- 
ated all  the  roads;  in  the  fourth,  from  1885  to  the 
present  time,  the  roads  have  been  operated  on  a 
lease  by  private  companies.  As  each  period  brings 
out  a  new  policy,  we  may  best  follow  the  history 
from  the  point  of  view  of  the  government. 

Italy  did  not  exist  as  a  united  kingdom  until  1870. 
Its  railway  history  begins  in  Sardinia,  the  nucleus 
of  Italian  unity.  Railways  had  already  been  built 
at  the  time  of  the  Peace  of  Villa-Franca  (1859),  by 
which  Austria  established  the  independent  Northern 
Italian  Government.  At  this  time  the  greater  part 
of  the  railroads  of  Northern  Italy  were  managed  by 
Austrian  companies.  It  was  the  desire  of  Italy  to 
be  rid  of  the  Austrians,  and  they  looked  forward  to 
the  purchase  of  the  railways  as  the  best  means.  In 
anticipation  of  this  they  encouraged  the  Upper 
Italian  Company  to  undertake  a  large  amount  of 
railway  construction.  It  was  their  policy  to  build 
this  company  up  by  concessions,  money  advances, 
and  loans  of  the  government  credit. 

This  was  the  first  phase  of  state  aid.  The  next 
was  the  guarantee  of  interest  in  the  French  style. 
The  Upper  Italian  Company  had  enjoyed  these 
guarantees  under  its  Austrian  concessions,  both  on 
bonded  indebtedness  and  net  proceeds.  By  the 
terms  ot  the  Peace  of  1866,  the  Italian  Government 
assumed  these  guarantees.  When,  in  1870,  the 
Northern  Italian  Company  acquired  the  Roman  rail- 
ways, the  guarantees  were  extended  to  them.  But 
although  the  state  advanced  this  company  upwards 


28      Railway  Control  by  Commissions 

of  $10,000,000,  its  financial  condition  grew  worse 
and  worse.  The  shares  upon  which  a  dividend  of  8 
percent,  had  been  paid  in  1864,  yielded  in  1874  only 
1^  per  cent.  The  same  policy  was  pursued  in  the 
case  of  the  Southern  Railway,  which  served  the 
shores  of  the  Adriatic.  In  the  period  from  1863  to 
1879  the  state  has  paid  to  this  company  in  guaran- 
tees, subsidies,  and  constructions  $70,000,000.' 

Previous  to  1879  ^he  state  had  undertaken  little 
construction.  Of  the  5000  miles  of  railway  in 
operation  in  that  year  less  than  one  quarter  had 
been  built  by  the  state,  but  almost  all  the  rest  was 
built  under  guarantees,  and  Italy  had  expended 
almost  as  much  on  them  as  if  she  had  constructed 
them  originally.  This  was  because  the  wretched 
state  of  her  finances  did  not  permit  her  to  dispense 
with  private  capital.  But  in  1879  the  state  became 
bolder,  and  undertook  a  series  of  constructions,  em- 
bracing about  4000  miles,  at  an  estimated  cost  of 
$246,000,000,  of  which  one  sixth  was  to  be  at  the 
expense  of  the  communes,  the  rest  at  the  expense 
of  the  state,  $12,000,000  to  be  advanced  each  year. 
This  plan  was  soon  found  impracticable.  The  old 
lines  depended  so  much  on  the  state  that  an  exten- 
sion of  state  competition  was  impossible.  The  only 
thing  for  the  state  to  do  was  to  own  all  the  roads  or 
to  own  none.  It  was  surely  to  the  interest  of  the 
state,  under  the  circumstances,  to  get  them  all. 
This  was  done,  and  Italy  entered  into  an  entirely 
new  relation  with  the  roads  —  that  of  exclusive 
owner  and  manager. 

'  Sterne,  33-7. 


Railway  Regulation  in  Italy        29 

This  relation  lasted  from  1879  ^^  ^885,  but  neither 
state  ownership  nor  state  management  was  regarded 
as  a  finally  accepted  system.  In  1878  a  commission 
had  been  appointed  by  the  Italian  Government, 
composed  of  fifteen  members,  six  being  Senators, 
seven  being  Deputies,  the  remaining  two,  engineers. 
This  commission  was  to  report  a  plan  which  should 
determine  the  permanent  policy  of  the  government. 

The  work  of  this  commission  is  without  a  parallel 
in  railway  history.  Like  the  Massachusetts  com- 
mission, it  had  no  power.  **  The  commissioners 
had  to  listen;  they  might  investigate  and  report; 
they  could  do  little  more."  '  But  they  went  to 
work  vigorously  and  systematically.  It  began  by 
circulating  throughout  Italy,  among  all  classes  who 
had  any  interest  in  railroads,  a  series  of  nearly 
two  hundred  printed  questions.  Answers,  oral  or 
written,  were  invited  to  any  or  all  the  questions, 
and  they  were  made  so  explicit  and  precise  that 
each  who  had  a  special  bit  of  information  might  find 
a  category  for  it.°  "  The  commission  sat  in  every 
large  city  of  the  Peninsula,  took  oral  testimony,  and 
invited  essays  from  all  who  had  or  claimed  to  have 
any  understanding  of  the  question."  '  An  enor- 
mous stock  of  information  was  got  at  in  this  way, 
but  the  material  was  very  bulky.  It  was  not  until 
the  year  1881  that  it  was  ready  for  reporting. 

The  report  which  embodies  the  labors  of  this 
commission  is  in  seven  quarto  volumes.  Three  con- 
tain the  oral  testimony,  three  give  a  digest  of  the 
written  answers  and  other  material  used,  the  seventh 

'Adams,  139.  '^  Hadley,  227.  ^Sterne,  39. 


so      Railway  Control  by  Commissions 

is  the  text  of  the  report  itself.     It  has  since  been 
bound  in  two  volumes  and  published. 

"  The  conclusions  which  the  members  reached  were: 
That  it  was  well  for  the  state  to  own  the  railways,  but  un- 
wise for  the  state  to  operate  them;  that  it  was  advisable 
to  lease  the  whole  railway  system  to  private  corporations. 
Their  arguments  were  :  That  this  was  the  best  way  to 
strengthen  the  finances  of  the  government  and  to  ensure 
efficient  public  service;  that  by  this  arrangement  two 
great  evils  would  be  done  away  with;  the  first,  the  de- 
moralization caused  by  the  appointment  and  control  of 
an  army  of  railway  officials;  the  second,  the  centraliza- 
tion of  the  vast  power  of  appointment  and  the  burden  of 
constant  supervision  to  prevent  its  abuse."  ' 

The  commission  had,  with  these  arguments,  to 
combat  very  strong  prejudices.  Many  interests 
were  bound  up  with  the  ownership  of  railways  by 
the  government.  "  The  railway  system  had  become 
a  sort  of  general  hospital  for  fi lends,  relatives,  and 
political  hangers-on  of  local  Deputies."  In  the 
matter  of  rates  there  was  the  same  situation.  "An- 
nually a  general  scramble  took  place  to  fix  the  tariffs 
to  suit  local  and  special  interests.  The  rates  came 
to  resemble  a  Congressional  river  and  harbor  appro- 
priation." ^ 

But  the  prejudice  of  localities  was  not  greater 
than  that  of  the  whole  nation.  To  advocate  gov- 
ernment control  was  an  article  of  the  Italian  patriot's 

'  Commissione   d'inchiesta  siilP    esercizio    delle  ferrovte   itqliane, 
Roma,  1881-4.     2  vols.     Harvard  Lib.,  vi.,  S916. 
2  Sterne,  38. 


Railway  Regulation  in  Italy        31 

faith.  "  The  greater  part  of  the  higher  pcrso?inc/  of 
the  largest  Italian  railway  system  was  composed  of 
Austrians.  These  men  had  achieved  their  positions 
through  years  of  active  study  of  the  interests  they 
were  called  upon  to  serve,  and  they  were  devoted  to 
their  work."  '  In  replacing  them  by  inexperienced 
Italians  whose  usefulness  did  not  extend  beyond  the 
sphere  of  politics,  the  Ministry  and  the  Legislature 
were  bargaining  for  popular  support.  Under  private 
management  capable  Austrians  would  be  retained 
to  the  exclusion  of  inexperienced  Italians. 

Public  opinion,  however,  was  counteracted  in  part 
by  the  straits  in  which  the  national  Treasury  found 
itself  at  the  moment.  Aside  from  the  fact  that  the 
roads  had  become  so  burdensome  to  the  government 
that  there  seemed  little  likelihood  of  running  them 
in  the  future  at  anything  like  a  profit,  there  was 
staring  the  government  in  the  face  a  deficit  of  over 
$50,000,000. 

It  has  been  said  of  this  commission  that  its  task 
was  to  make  popular  a  plan  which  the  government 
was  forced  to  adopt.  Yet  it  is  conceded  that  its 
straightforward  work  and  the  acceptance  of  its  rec- 
ommendations depended  upon  the  convictions  of  a 
public  that  had  been  set  thinking.  This  is  one  of 
the  strongest  recommendations  that  can  be  made 
for  a  body  of  experts  representing  a  democratic  com- 
munity. Another  point  in  favor  of  this  commission 
was  its  economy.  It  undoubtedly  saved  much  use- 
less debate  and  aimless  investigation.  Apart  from 
this,  and  as  compared  with  other  commissions,   it 

'  Sterne.  38. 


32      Railway  Control  by  Commissions 

was  a  model  of  business-like  public  service.  "  The 
total  expense  involved  in  this  immense  work,  lasting 
between  two  and  three  years,  was  $27,000."  The 
salaries  of  only  two  of  the  English  commissioners 
amount  to  $30,000.  For  the  commission  from  1873 
to  1888  there  was  a  third  commissioner,  with  a  salary 
of  $15,000;  for  the  commission  provided  for  in  1888 
there  were  several  assistant  commissioners.  We 
need  not  estimate  the  amount  of  expenses  which  an 
English  commission  is  capable  of  running  up.  For 
the  four  Massachusetts  commissioners  the  salaries 
amount  annually  to  $14,500.  The  three  New  York 
commissioners  get  $24,000  a  year.  Thus,  whatever 
the  inner  working  of  the  commission  was,  its  task 
was  performed  thoroughly,  efificiently,  and  with 
little  expense.*  Admitting  that  its  only  result  was 
to  bring  to  the  aid  of  a  plan  which  the  government 
had  preconceived  as  inevitable  the  pressure  of  an 
enlightened  opinion  among  the  general  public,  then 
we  have  conceded  to  it  an  eminently  successful  per- 
formance of  that  very  task  for  which  a  railroad  com- 
mission should  exist.  Although  the  commission, 
whose  work  we  shall  discuss  more  fully,  is  a  perma- 
nent one,  and  works  under  different  circumstances, 

'  Sterne,  "  Some  Phases  of  the  Railway  Question  in  Europe,"  Q. 
y.  E.,  453  ff.  ;  Sterne,  Report,  37  ;  Jeans,  Railway  Problems,  87; 
Hadley,  227  ;  Patterson's  Practical  Statutes,  1873  and  1S88,  36, 
37;  Vict.  Cap.,  25,  51,  52;  Vict.  Cap.,  48. 

A  point  not  mentioned  by  Sterne,  in  his  criticism  of  Hadley,  is 
that  Italy  was  planning  to  resume  specie  payments.  She  passed  a 
law  for  resumption,  April  7,  1881.  A.  B.  Houghton,  "  Italian 
Finances  from  1886  to  1S84,"  Q.  J.  E.,  iii.,  233,  373,  January  and 
April,  1889.  * 


Railway  Regulation  in  Italy        33 

the  principle  upon  which  it  rests  and  the  power  which 
it  brings  to  it  said,  namely,  straightforwardness  and 
publicity,  are  identical  with  those  of  the  Italian  com- 
mission. This  commission  did  bring  public  opinion 
to  its  side.  It  rescued  Italian  railroad  policy  from 
a  sea  of  doubt  and  sent  the  government  forth  deter- 
mined upon  a  fixed  course. 

The  projects  of  the  commission  were  immediately 
carried  into  effect.  In  [885  the  roads  were  leased 
to  three  companies,  for  a  period  of  sixty  years,  each 
party  to  have  the  right  of  terminating  the  lease  at 
the  end  of  each  period  of  twenty  years,  the  com- 
panies to  advance  on  the  rolling  stock  $53,000,000.' 
When  dividends  are  in  excess  of  7^  per  cent,  the 
company  divides  with  the  government.  The  gov- 
ernment receives  as  rental  2  per  cent,  of  the  gross 
receipts  of  the  roads."  The  situation  in  Italy  is 
now  somewhat  like  that  in  France.  The  permanent 
government  control  is  in  the  hands  of  a  commission 
under  the  headship  of  the  Minister  of  Public  Works. 
It  is  composed,  as  in  France,  of  delegates  from  the 
government  and  the  railroads,  elected  by  their  col- 
leagues in  the  bodies  from  which  they  are  chosen. 
The  work  of  this  council  is  not  primarily  to  manage 
rates,  but  to  study  the  wants  of  the  country.  Yet 
all  tariff  regulations  involving  a  change  in  the  tariff 
are  first  submitted  to  the  Minister  of  Public  Works, 
and  then,  with  his  recommendations,  to  the  Parlia- 
ment, there  to  be  finally  accepted  or  rejected.  To  aid 
the  Ministry,  inspectors  are  appointed  throughout 
the  kingdom  to  report  the  complaints  of  localities. 

'  Sterne,  39.  '■'  Larraljee,    The  Railroad  Question. 


34      Railway  Control  by  Commissions 

With  their  assistance  the  rates,  especially  those 
on  freight,  are  elastic  to  the  minutest  particulars. 
The  government  has  a  free  hand  to  lower  rates,  so 
long  as  its  recommendation  does  not  affect  more 
than  one  half  of  one  per  cent,  of  the  net  income. 
In  Italy,  as  in  France,  both  the  railroads  and  the 
state  are  protected  against  arbitrary  changes  by 
the  interest  of  the  latter  in  the  dividends  of  the 
roads. 


CHAPTER  IV 

RAILWAY    REGULATION    IN   AUSTRIA 

THE  railway  history  of  Austria  has  much  in  com- 
mon with  that  of  the  other  nations  of  Europe. 
There  has  been  government  interference  of  many 
sorts,  attempts  at  state  ownership,  attempts  at  com- 
petition with  private  companies  which  enjoyed  the 
subsidies  of  guarantees  of  the  state,  and  attempts 
to  lend  the  railroad  system  to  the  political,  financial, 
and  military  necessities  of  the  nation.  But  two 
truths  which  are  shown  by  the  experience  of  the 
other  countries  of  Europe  are  brought  out  with  es- 
pecial clearness  in  that  of  Austria.  The  first  is  that 
whenever  a  nation,  after  leaving  to  private  enterprise 
the  development  of  a  part  of  the  network,  itself  em- 
barks in  railway  construction,  either  of  two  things 
will  happen  :  either  the  private  companies  will  get 
the  most  productive  territory,  the  unpaying  districts 
being  left  to  the  state,  or  the  private  companies  will, 
in  some  way,  make  it  profitable  or  necessary  for  the 
state  to  shoulder  the  whole  system.  This,  as  we 
have  seen,  has  been  the  experience  of  France  and 
Italy,  and,  as  we  shall  see,  of  Belgium  and  of  Aus- 
tria. The  second  truth  is  that  the  most  effective 
regulation  is  a  penetrating  and  intelligent  public 
interest  guided  by  thorough  publicity  of  all  railroad 

35 


36      Railway  Control  by  Commissions 

matters;  that  the  best  form  of  control,  in  the  long 
run,  is  that  which  most  effectively  maintains  public 
interest  and  brings  public  opinion  to  a  head. 

When  railroads  were  first  introduced,  Austria  was 
the  home  of  the  most  bigoted  conservatism.  The 
Austrian  court  and  Austrian  statesmen,  Metternich 
in  particular,  looked  upon  the  new  contrivance  with 
distrust,  as  a  dangerous  step  toward  radicalism. 
Until  1836,  the  ruling  class  in  Austria  discouraged 
railroads,  and,  as  has  been  well  said,  from  their  own 
point  of  view,  they  were  right.  In  that  year,  how- 
ever, the  Emperor  yielded  to  the  persistent  demands 
of  private  enterprise,  and  granted  to  Baron  Roths- 
child a  charter  for  a  road  from  Vienna  into  the 
province  of  Galicia.  To  Baron  Sina  a  charter  was 
granted  for  a  line  from  Vienna  to  Raab  and  Glogg- 
nitz.  But  the  Emperor's  real  attitude  toward  the 
new  ventures  was  shown  by  the  words  he  let  fall  as 
he  signed  these  charters :  "  The  thing  can't  maintain 
itself  anyhow."  ' 

If  this  prescience  on  the  part  of  the  Emperor  had 
come  from  any  depth  of  thought  on  the  subject, 
there  might  have  been  suggested  the  corollary  that 
if  private  enterprise  could  not  maintain  the  railroads, 
the  state  would  have  to.  Railroads  insisted  on 
coming  whether  monarchical  government  liked  them 
or  not.  The  state  soon  decided  that  it  did  like 
them.  It  began  by  granting  to  each  road  a  mon- 
opoly in  its  chosen  territory  during  the  period  of  its 
charter.*     Then  guarantees  of  interest  were  made. 

'  Hadley,  208-9. 

^  Hadley,  209  ;   Larrabee,  58. 


Railway  Regulation  in  Austria      2>7 

Finally  railroads  rose  so  high  in  the  favor  of  the 
government  that  the  state  began  to  construct  for 
itself  lines  which  private  enterprise  was  not  disposed 
to  undertake.  The  period  of  state  construction 
lasted  from  1840  to  1848.  Then  began  that  series 
of  political  events  which  was  to  set  the  Austrian 
Government  at  such  a  disadvantage  in  its  rivalry 
with  private  companies  in  the  management  of  the 
railways.  The  first  shock  came  in  1848,  the  year 
of  revolution  throughout  Europe.  At  the  outbreak 
of  the  Hungarian  War  the  best  state  railways  were 
immediately  sold  for  cash.  What  the  real  reason 
for  this  particular  action  was  is  immaterial.  Hadley 
says  that  the  sale  was  made  to  assist  the  railway 
companies.  Sterne  says  that  this  is  the  idealistic 
conception  of  a  well-meaning  but  unpractical  and 
inexperienced  college  professor.  The  state,  he  says, 
had  no  idea  of  helping  anybody  but  itself.  The 
state  did  not  give  up  its  railways  because  it  could  not 
run  them  at  a  profit,  nor  because  state  ownership 
was  inconsistent  with  their  economical  and  efficient 
administration,  but  because  Austria  was  in  need  of 
funds.  She  simply  sold  her  best  assets  to  obtain 
money  for  other  and  more  vital  purposes  of  gov- 
ernment.' These  two  interpretations  may  well  be 
partial  explanations.  The  whole  truth  seems  to  be 
that  when  a  government  finds  itself  in  straits  rail- 
ways are  a  particularly  difficult  thing  to  hold.  Aus- 
tria did  not  succeed  in  accomplishing  this  task.  In 
1853  many  lines  were  sold  at  about  half  their  cost 

'  Hadley,    209-10  ;     Sterne's     Report,   41  ;    Sterne,    Q.     y.    E., 
i-,454. 


38      Railway  Control  by  Commissions 

of  construction.'  With  the  abandonment  of  Northern 
Italy,  Austria  had  to  let  go  some  of  the  most  im- 
portant connecting  links  in  the  trunk  lines  of  the 
Austrian  system,  while  they  were  yet  in  process  of 
construction.  Nor,  in  the  trying  experiences  which 
the  state  was  undergoing,  were  the  private  com- 
panies imbued  with  any  of  the  sentiment  which 
Hadley  supposes  the  government  cherished  toward 
them. 

They  were  interested  in  the  railway  companies, 
not  in  the  fortunes  of  the  government.  The  poor 
service  afforded  by  the  railways  has  been  pointed 
out  by  a  high  authority  as  a  potent  factor  in  the  de- 
feats of  Austria,  by  France  in  1859,  ^Y  Prussia  in 
1866.''  In  the  furious  construction  that  sprang  from 
the  wild  speculation  in  the  period  from  1866  to  1873 
there  could  have  been  little  ente^ite  between  the 
government  and  the  companies,  for  when  the  final 
crash  came  in  1873  the  ruin  was  suffered  ultimately 
by  the  government,  even  where  it  had  none  of  the 
chances  of  profit.  The  result  was  that  the  govern- 
ment was  forced  into  a  policy  of  more  active  inter- 
ference. Of  the  results  of  this  we  shall  hear  later. 
An  extension  of  the  old  policy  of  state  construction 
was  another  phenomenon  of  the  reaction.  If  the 
state  were  to  bear  losses  it  might  as  well  have  the 
profit.  In  most  cases,  however,  this  consideration 
was  not  necessary  to  impel  the  state  to  resume  that 
policy,   which,   though  now  abandoned   for  twenty 

'  Hadley,  210. 

^  Col.  von  Frendrickh,  quoted'in  Findlay,  291-96  ;  see  also  Hadley 
and  Sterne  as  above,  and  Larrabee,  57. 


Railway  Regulation  in  Austria      39 

years  in  Austria,  had  been  maintained  in  Hungary. 
There  were  certain  roads  which  private  enterprise 
would  never  undertake.'  Such  were  those  in  Styria 
and  the  Austrian  Tyrol,  whose  importance  was 
mainly  strategical ;  such  were  those  from  Vienna  to 
the  outlying  frontiers  and  to  the  provinces,  the  value 
of  which  was  mainly  political.  In  1886  the  lines  in 
the  hands  of  private  companies  composed  three 
fourths  of  the  entire  network.  By  1891  the  portion 
owned  by  the  state  amounted  to  one  half.  In  1875 
the  total  length  was  10,790  miles;  in  1891  the  net- 
work of  the  state  alone  amounted  to  8600  miles,  the 
great  total  had  been  increased  to  16,400  miles. 
Though  the  state  has  recovered  the  grip  which  it 
lost  just  after  1848,  Austria  still  finds  itself  in  the 
anomalous  position  of  having  its  worst  lines  in  the 
hands  of  the  state,  its  best  in  the  hands  of  private 
corporations.* 

The  policy  of  government  interference  above  re- 
ferred to  connects  itself  very  closely  with  that  phase 
of  the  Austrian  experience  which  shows  so  clearly 
the  effectiveness  of  publicity  as  a  means  of  railway 
control.  The  crash  of  1873  resulted  in  an  investi- 
gation. One  of  the  revelations  was  that  a  large 
proportion  of  the  railways  built  from  1866  to  1873 

"  not  only  did  not  open  up  any  new  territory,  but  owed 
their  origin  to  speculation  pure  and  simple  and  their  con- 
tinued existence  to  the  traffic  they  could  sponge  out  of 
the  roads  already  in  operation.     And  for  the  construction 

'  Sterne,  Report,  41  ;    Pladley,  212  ;    Larrabee,  58. 
«  Sterne,  ^.  7.  ^.,  i.,  455. 


40      Railway  Control  by  Commissions 

of  these  roads  the  government  made  great  sacrifices  in 
the  way  of  guarantees."  ' 

The  second  revelation  was  that  the  entire  debt  of 
these  roads  was  unsecured,  that  is,  secured  only  by 
mortgages  which,  owing  to  a  failure  to  have  them 
recorded  in  the  prescribed  manner,  had  no  legal 
standing  in  Austria.  This  was  noticed  only  when 
one  road  after  another  declared  itself  unable  to  pay 
interest.  Yet  the  existence  in  1868  of  an  advisory 
commission,  with  the  simple  powers  of  the  Massa- 
chusetts Commission,  namely,  to  investigate  and  re- 
port, would,  by  doing  nothing  more  than  informing 
the  public  of  the  nature  of  the  work,  have  prevented 
loss  to  the  public  and  to  the  state,  financial  crisis, 
and  the  demoralization  of  public  confidence. 

A  new  era  has  dawned  upon  Austrian  railway 
management.'  The  work  of  this  era  has  been  the 
popularization  of  the  railways.  The  method  has 
been  to  simplify  their  regulation  and  to  rely  for 
their  control  mainly  upon  publicity.  Indeed,  this 
movement  in  Austria  and  Hungary  is  a  most  strik- 
ing illustration  of  the  efificacy  of  public  opinion 
brought  to  a  head  by  intelligent  discussion.  What 
may  be  called  a  social  revolution  in  railway  trafific 
has  been  brought  about,  not,  be  it  remembered,  by 
government  initiative,  but  by  public  discussion.  As 
the  most  prominent  forces  in  this  movement  there 

'  Emil  Sax,  Die  Verkehrsmitiel,  ii.,  521  ;  quoting  the  commission's 
report  written  in  1877  ;   Hadley,  211. 

*J.  Wessely  in  Annals  American  Academy  for  Political  and 
Social  Science,  September,  1890,  i.,  345,  346  ;  Jeans,  Railway  Prob- 
lems, 83. 


Railway  Regulation  in  Austria      41 

stands  out,  first,  the  national  rivalry  between  the 
two  dominant  populations  of  the  Austrian  Empire, 
the  Germans  and  the  Hungarians ;  second,  the  influ- 
ence of  the  clubs  of  railway  officials;  and,  third,  the 
influence  of  the  Austrian  school  of  economists.  The 
principle  upon  which  these  forces  met  was  that 
the  greatest  utility  could  be  gained  from  the  roads 
by  reducing  fares  and  freights  in  such  a  way  as  to 
increase  traffic.  "  In  1883  Mr.  Hertzka,  an  Aus- 
trian economist,  undertook  by  a  systematic  effort  to 
convince  railway  managers  in  Austria  that  the  time 
had  come  for  a  decided  reduction  in  passenger  rates. 
He  proposed  the  system  which  has  since  become 
well  known  as  the  zone  system,"  *  of  which  the 
general  plan  is  to  make  the  element  of  distance  of 
less  importance  by  making  the  unit  of  distance,  on 
which  the  charge  is  computed,  much  larger.  The 
plan  was  presented  for  discussion  to  the  Club  of 
Austrian  Railway  Officials.  It  was  agitated  in  the 
Austrian  newspapers  to  such  an  extent  that  the  sub- 
ject attracted  much  attention  outside  the  kingdom, 
and,  among  other  countries,  in  Hungary. 

"  Now,  there  is  a  sort  of  perpetual  rivalry  between  the 
Austrian  provinces  and  Hungary,  in  all  matters  not  only 
of  politics  but  of  industry  as  well.  Thus  the  State  Rail- 
way Office  in  Hungary  was  impelled  by  popular  and 
scientific  discussion  to  take  the  first  step.  Then,  when 
the  Hungarian  management  had  adopted  the  zone  sys- 
tem, public  pride  in  Austria  was  deeply  wounded.     The 

'  For  full  discussion  of  tiie  zone  system  see  James,  in  Q.  y.  E., 
January,  1891,  v.,  168. 


42      Railway  Control  by  Commissions 

Austrian  railroads  were  severely  criticised  for  their  slow- 
ness and  seeming  neglect  of  public  interests."  ' 

The  system  which  was  adopted  in  Hungary  in  the 
summer  of  1889  went  into  operation  in  Austria  June 
16,   1890. 

This  change  was  applied  only  to  the  passenger 
service.  Its  advantages  are  already  proved.  It 
makes  the  rates  simple  and  easy  to  understand;  it 
reduces  rates  very  much,  yet  the  traffic  has  increased 
to  such  an  extent  that  there  has  been  a  net  gain  to 
the  railways. 

"  In  Hungary,  the  number  of  passengers  rose  steadily 
from  month  to  month,  the  increase  for  the  first  five 
months  being  over  133  per  cent. ;  the  returns  for  the  first 
eight  months — to  April  i,  1890 — show  an  increase  of  169 
per  cent.,  with  the  tendency  steadily  upward.  Local 
traffic  in  this  time  increased  1600  per  cent."  "  "In 
Austria  the  experience  of  the  first  three  months  has  satis- 
fied the  managers  of  the  state  roads  that  they  are  on  the 
right  road.  Such  an  impression  has  been  made  on  the 
managers  of  private  roads  that  four  of  them  have  made 
an  agreement  to  adopt  the  new  system  beginning  the  ist 
of  October,  1891.  Further,  the  Hungarian  State  Rail- 
way Office  has  proposed  to  extend  the  system  to  the 
frieght  service,  hoping  that  the  same  success  will 
follow."  ^ 

Here,  then,  we  have  seen  the  value  of  movements 

'James,  Q.  J.  E.,  January,  1891,  v.,  169,  177. 
^  Ibid.,  177. 

^  Ibid.,  1S3-84  ;  see  also  Hadley,  Forum  for  April,  1S91  ;  Lar- 
rabee,  59. 


Railway  Regulation  in  Austria      43 

which  start  and  acquire  their  force  among  the  gen- 
eral public.  Such  a  movement  is  worth  the  expense 
of  a  commission  for  many  years.  The  work  of 
Hertzka  and  his  friends  was  just  such  as  is  done  by 
the  advisory  commission.  Apart  from  this,  the 
work  of  railway  control  in  Austria  has  been  done 
by  the  ministries  of  commerce  and  public  works. 
Under  their  direction  a  state  organization  supervises 
the  railways  and  regulates  them  with  special  solici- 
tude for  the  interest  of  the  public.  By  the  adoption 
of  the  zone  system  this  work  has  been  much  simpli- 
fied. It  is  the  desire  of  the  government  to  simplify 
it  more. 


CHAPTER  V 

RAILWAY   REGULATION   IN   BELGIUM 

THE  particular  thing  which  Belgium  shows  to  us 
is  the  value  of  one  disinterested  man  of  superior 
ability  to  the  railway  system  of  a  country.  Leopold 
I.  of  Belgium,  a  prince  of  the  house  of  Saxe-Coburg, 
came  to  the  throne  in  1831,  after  an  exile  in  Eng- 
land. Belgium  had  at  the  very  start,  what  none  of 
the  countries  whose  railway  experience  we  shall 
study  had,  a  man  of  superior  intellect,  who  had 
watched  for  some  years  the  experience  of  another 
people  in  railway  management ;  and  this  man  had 
the  power  to  make  the  fullest  use  of  his  observa- 
tions. When  we  find  that  the  plan  upon  which  the 
Belgian  railway  system  was  first  projected  has  been 
maintained  without  a  break,  we  are  ready  to  believe 
that  this  man  used  the  power  conferred  upon  him ; 
and  when  we  discover  how  many  advantages  have 
been  gained  from  the  excellence  of  this  plan  and 
how  many  mistakes  avoided,  we  shall  concede  that 
he  used  his  power  well. 

Owing  to  the  variety  and  activity  of  the  industry 
of  Belgium,  and  to  her  well-defined  lines  of  trade,  it 
was  possible  to  plan  at  the  outset  that  system  in 
railway  construction  which  other  countries  have 
either  never  attained  or  have  hit  upon  empirically.' 

'  Hadley,  212  ;  Adams,  206. 
44 


Railway  Regulation  in  Belgium     45 

It  was  the  desire  of  the  government  to  own  all  the 
roads.  Since,  however,  the  state  could  not  meet 
the  demands  of  trade,  the  following  plan  was  sub- 
stituted. The  government  was  to  construct  the 
main  lines  itself,  but  granted  charters  to  private 
companies  for  smaller  lines  running  between  the 
main  lines  or  feeding  them.'  The  essence  of  the 
policy  is  this.  Railways  should  be  owned  by 
the  state  and  operated  for  the  benefit  of  the  public, 
as  the  Post-Office  is  managed  in  America.  "  Only 
that  was  left  to  private  initiative  which  would  bring 
from  competition  only  its  benefits."  '  This  work  in 
Belgium  corresponds  to  that  done  by  our  system  of 
mail-wagons,  which  carry  from  the  smaller  to  the 
greater  distributing  centres.  We  may  follow  out 
this  plan,  first,  as  to  the  financial  relations  of  pri- 
vate roads  with  the  state,  secondly,  as  to  the  dis- 
tribution of  lines. 

The  plan  was  to  have  main  lines  and  feeders  com- 
pete on  a  footing  of  equality.  Charters  were  granted 
for  ninety  years.  At  the  end  of  this  time  the  state 
should  assume  the  roads  for  the  payment  merely  of 
the  rolling  stock.  But  the  right  was  reserved  to  the 
state  to  assume  them  at  any  time  by  binding  itself 
to  pay  to  the  stockholders  an  annual  sum  for  the 
unexpired  balance  of  the  ninety  years  equal  to  the 
average  net  annual  receipts  computed  on  the  seven 
years  last  preceding.  Until  the  charters  should 
come  to  an  end,  the  several  roads  could  do  as  they 
pleased  as  to  rates.  The  government  could  regulate 
the  rates  by  competition.  By  this  very  simple 
'  Adams,  95-8.  "■'  Findlay,  220. 


46      Railway  Control  by  Commissions 

arrangement  the  railroads  were  for  the  first  and  only 
time  in  history  brought  under  the  ordinary  rules  of 
competition.  No  combination  was  possible  as 
against  the  public.  "  The  government  found  itself 
in  a  position  to  regulate  the  whole  system  through 
the  ownership  of  a  part.  In  consequence  cheap 
railroad  transportation  was  established  very  early. 
Under  its  influence  the  country  and  the  railroad 
system  developed  with  amazing  rapidity."  ' 

The  state  commenced  the  construction  of  railways 
as  early  as  1834.  Four  great  state  lines  were 
stretched  out  in  different  directions.  In  a  few 
years,  after  the  more  remunerative  routes  were  oc- 
cupied, charters  were  granted  for  private  lines  to 
run  between  them.*  This  system  worked  wonders 
for  a  time.  It  was  said,  however,  in  a  preceding 
chapter,  that  whenever  the  government  tries  to  com- 
pete with  private  railways,  it  either  gets  the  worst 
roads  or  ends  by  owning  them  all.  In  Belgium  the 
state  had  made  sure  of  the  best  roads  at  the  outset. 
It  took  the  alternative,  and  acquired  them  all.  Up 
to  1870  the  state  was  in  the  position  of  being  by  far 
the  richest  and  most  powerful  railroad  company  of 
its  system,  holding  in  check  and  regulating  other 
inferior  companies  which  it  had  taught  to  compete 
with  it  on  terms  of  equality.      The  roads  began  to 

'  Adams,  96,  99.  Mr.  Adams  was  so  fascinated  by  the  Belgian 
system  that  he  proposed,  as  railroad  commissioner,  that  Massachu- 
setts should  purchase  the  Fitchburg  road  to  run  it  in  competition 
with  the  private  roads  of  the  Commonwealth.  See  on  this  Mass. 
Commission,  2d  Report,  iii.  ff.  ;  4th  Report,  67,  70,  80,  81,  and 
Hadley,  136,  215,  and  note. 

''Adams,  95,  98  ;  Sterne,  Rtport,  41  ;  Larrabee,  Ivi.,  409. 


Railway  Regulation  in  Belgium     47 

learn  that  this  equality  was  losing  some  of  its  reality. 
The  state  roads  were  united.  The  independent 
companies  were  forced  to  combine,  owing  to  a  cer- 
tain attitude  of  the  government.  But,  since  this 
would  defeat  the  object  of  the  system,  the  govern- 
ment resolved  to  revert  to  its  original  policy.  This 
it  has  done  since  1870  by  a  process  of  absorption.  In 
1870  the  state  owned  sixty  per  cent,  of  the  roads. 
In  1870  many  competing  lines  had  been  purchased; 
in  1872  the  road  into  Luxembourg  was  purchased. 
In  1874  it  had  owned  one  half  the  mileage,  in  1880 
two  thirds,  in  1886  about  three  quarters,  and  now  it 
owns  all  but  a  few  short  lines  built  in  the  early  days 
of  railway  construction.'  Already  in  1886  the  rates 
of  all  independent  lines  were  based  upon  those 
adopted  by  the  State  Railways  and  sanctioned  by 
the  Minister.  Thus  the  Belgian  system  of  to-day  is 
that  which  was  originally  desired,  and  not  at  all  like 
that  which  really  existed  up  to  1869.^ 

But  nothing  that  happens  after  we  are  twelve 
matters  very  much,"  says  Barrie.  So,  nothing  that 
happened  after  1869  mattered  very  much.  It  is  to 
the  formative  period  that  we  can  lay  the  woes  of 
American  railroad  experience;  it  is  to  the  mixed 
system  that  we  must  attribute  the  excellence  of  the 
Belgian  railways.  The  first  result  of  this  system 
was  a  saving  of  public  resources  that  cannot,  for 
want  of  a  standard  of  comparison,  be  estimated. 
Belgium  has  the  best  track  system  and  the  most  re- 
sponsive service  of  any  country  in  the  world.      This 

'  Hadley,  2i6  ;  Larrabee,  57. 

^  Grierson,  Railway  Rates,  English  and  Foreign,  Appendix,  xxvii. 


48      Railway  Control  by  Commissions 

brings  us  to  the  second  advantage,  the  rates.  Dur- 
ing the  period  of  competition  they  were  brought 
down  to  the  lowest  point,  and  they  have  not  been 
increased.  The  freight  rates  are  lower  than  any- 
where else  in  Europe.  Though  nominally  they  are 
about  the  same  as  in  the  United  States,  for  almost 
any  given  service  they  are  practically  lower.  The 
passenger  rates  are  lower  than  anywhere  else  in  the 
world,  except,  perhaps,  on  some  of  the  East  Indian 
railroads.'  Those  who  have  travelled  in  Belgium 
know  that  the  coaches  are  more  comfortable  than 
those  of  England  or  any  country  on  the  Continent. 
These  conditions  are  not  due  to  the  present  system 
of  government  ownership,  though  the  ef^cient  ad- 
ministration of  the  Ministry  may  well  be  given  the 
credit  of  maintaining  them.  It  was  in  the  formative 
period  that  the  good  was  done.  A  good  character 
was  infused  into  the  Belgian  system  long  before  it 
had  reached  the  age  of  twelve.  It  had  a  good  pre- 
ceptor at  the  outset.  That  was  Leopold.  He  had 
lived  in  England  and  had  seen  the  miscarriage  of 
private  construction  and  the  absurdity  of  the  high- 
w^ay  theory  of  railway  competition.  He  had  learned 
that  the  thing  must  be  guided  and  planned.  It  was 
he  who  planned  the  admirable  system  to  which  Bel- 
gium owes  so  much.  The  one  conclusion  I  wish  to 
draw  from  the  experience  of  Belgium  is  that  the 
value  of  the  right  man  in  the  right  place  far  exceeds 
that  of  successive  legislatures  for  decades.  This  is 
seen  by  a  comparison  of  the  work  of  Leopold 
with  that   of  France  or  Austria.      So  the  railway 

'  Larrabee,  56;  Hadley,  216;  Grierson,  App.,  xxvii.-xliii. 


Railway  Regulation  in  Belgium     49 

commission,  which  gives  us  an  opportunity  to  get 
three  or  five  good  men  in  the  right  place,  gives 
more  chance  of  railway  improvement  than  innumer- 
able successive  legislatures  working  alone.  This  will 
be  seen  in  the  experience  of  the  United  States  and 
in  that  of  Massachusetts. 

4 


CHAPTER  VI 

RAILWAY    REGULATION    IN   GERMANY 

THE  German  Empire  of  to-day  is  a  loose  federa- 
tion of  sovereign  German  states,  one  of  which, 
however,  predominates  in  wealth,  influence,  and 
political  power.  This  state  is  Prussia,  whose  reign- 
ing king  has,  since  1871,  always  been  German  Em- 
peror. Not  only  is  the  railway  experience  of  Prussia 
more  important  and  more  characteristic  than  that  of 
any  other  state,  but,  when  we  have  seen  the  relation 
of  railways  of  the  other  states  to  those  of  Prussia, 
there  will  be  very  little  to  explain.  We  shall  deal, 
therefore,  mainly  with  the  experience  of  Prussia. 
This  state  has  developed  for  the  control  of  the  rail- 
ways, which  since  the  Franco-Prussian  War  have 
been  owned  and  managed  exclusively  by  the  state, 
not  only  a  new  executive  department  and  a  perma- 
nent commission,  but  an  entire  representative  sys- 
tem. The  commission  and  the  two  railway  councils, 
the  national  council  and  the  district  council,  are  as  a 
system  extreme  types  of  the  commission  with  power. 
This  organization  is  almost  perfect  in  its  attainment 
for  two  important  ends.  First,  it  has  perfect 
machinery  for  finding  out  public  needs  and  impress- 
ing them  on  the  legislature;  second,  there  is  abso- 
lute certainty  that  the  just  demands  of  the  public 


Railway  Regulation  in  Germany     51 

will  be  carried  into  effect  by  the  legislature  and  the 
railways.  We  have  in  the  United  States  types  of 
the  commission  with  power.  When  we  see  how 
wofully  they  lack  anything  approaching  the  organi- 
zation, power,  and  efificacy  of  the  German  organiza- 
tion, and  at  what  a  sacrifice  of  all  that  is  characteristic 
of  American  government  they  can  be  made  half  so 
ef^cient,  we  must  conclude  that  our  attempts  to 
control  railways  by  commissions  with  power  are  de- 
plorable failures.  When,  also,  we  notice  that  under 
our  institutions  commercial  and  industrial  organiza- 
tions give  rise  to  those  bodies  and  powers  which, in 
Germany  spring  from  government,  we  shall  be  con- 
vinced that,  with  us,  the  commission  with  power  is 
unnecessary.  When,  further,  we  see  that  attempts 
of  government  to  supply  those  powers,  which  with 
us  properly  belong  to  commerce,  industry,  and  the 
general  public,  discourage  regulation  by  commercial 
organization,  we  shall  find  that  the  commission  with 
power  is  positively  harmful.  This,  I  believe,  is,  for 
us,  the  lesson  of  German  railway  regulation. 

It  was  not  until  1838  that  railways  assumed  im- 
portance enough  to  merit  legislation.  In  that  year 
Prussia  made  a  general  railroad  law  which  gave  color 
to  all  German  regulations.  It  was  based  on  the 
fundamental  principle  of  German  political  life, 
namely,  that  it  is  the  right  and  duty  of  the  state  to 
regulate  all  matters,  of  public  interest  or  private. 
The  Germans  do  not  resent  police  regulations  which 
destroy  the  independence  of  the  household  and  tell 
men  how  they  shall  care  for  their  own  welfare.'     It 

'  W.  H.  Dawson,  Gerinany  and  the  Germans,  i.,  59-63  ;  ii.,  23. 


52      Railway  Control  by  Commissions 

is  hardly  surprising  that  legislation  should  be  at- 
tempted at  the  outset  to  prevent  men  from  interfer- 
ing with  the  welfare  of  others.  The  legislation  of 
1838  dealt  with  the  planning  of  the  lines,  rates  on 
merchandise,  preventing  of  competition,  and  safe- 
guards against  accidents.'  Prussia,  as  we  shall  see, 
did  not  plan  to  own  the  roads  until  after  1870,  al- 
though she  was  from  time  to  time  obliged  to  acquire 
some  lines  and  manage  others.  The  southern  states, 
on  the  other  hand,  built  their  own  roads  from  the 
first.  Thus  Wurtemberg,  Baden,  and  Bavaria  have 
always  had  a  complete  state  system.  In  these  states, 
as  in  all  Germany,  to-day  the  railway  system  is 
worked  in  conjunction  with  the  postal  system.'  The 
two  are  allied  departments  of  the  same  government. 
It  is  suggestive  of  many  of  the  political  notions 
which  Germany  has  recently  given  to  the  world, 
that  in  a  large  capital  like  Munich  there  should  be 
one  large  railway  station,  and  that  it  should  serve 
as  the  chief  distributing  office  of  the  national  postal 
system.  This  same  alliance  is  suggestive,  also,  of 
the  relation  of  the  railway  systems  of  the  states  to 
the  federation  of  the  states.  Those  states  which 
have  a  railway  system  independent  of  Prussia  have, 
as  a  general  rule,  retained  an  independent  postal 
system.  As  it  would  have  been  helpful  to  Bis- 
marck's schemes  for  uniting  Germany  under  Prussia 
to  the  exclusion  of  Austria  if  he  could  have  per- 
suaded the  smaller  states  to  turn  over  their  postal 

'Sterne,  Rep.,  29;  Jeans,  79. 

''Sterne,  AV/.,  2^ ff.  ;  Findlay,  220;  Adams,  112-113;  Larrabee, 
53- 


Railway  Regulation  in  Germany     53 

systems  to  the  Empire,  so  did  he  desire  to  unite  all 
the  railways  under  Prussian  control.  To  this 
Saxony  and  Bavaria  made  a  vigorous  opposition. 
As  a  result  there  are  as  yet  no  imperial  railways  ex- 
cept those  of  Alsace  and  Lorraine.  These  districts 
have  no  status  outside  the  empire  and  no  represen- 
tation in  it.  Their  railways  are  under  the  wardship 
of  Prussia.  Though  the  several  states  have  retained 
their  railways  under  their  own  control,  it  falls  to  the 
imperial  government  in  Berlin  to  meet  all  difficulties 
arising  out  of  the  federal  nature  of  some  of  the  ser- 
vices performed  by  the  roads  and  out  of  their  inter- 
state relations.'  These  matters  are  regulated  in  the 
same  way  as  the  interstate  postal  service,  the  rev- 
enues always  accruing  to  the  several  states.  They 
are  referred  in  the  Federal  Council  to  a  committee 
called  the  Committee  on  Railways,  Posts,  and  Tele- 
graphs for  the  Settlement  of  Federal  Disputes.  To 
this  committee  the  Imperial  Council  grants  execu- 
tive power.  Apart  from  these  regulations  the  interest 
in  German  railways  centres  in  the  development  of 
the  Prussian  system. 

The  present  wonderful  system  of  Prussia  is,  as 
was  the  Belgian  system,  the  work  of  one  man.  The 
man  in  this  case  was  Bismarck.  It  was  when  he 
had  achieved  the  victory  of  1870  that  the  present 
system  took  shape.  It  does  not  resemble  at  all  what 
he  became  acquainted  with  when  he  first  entered 
public  life.  The  general  railway  law  of  1838  pro- 
vided for  charters  to  private  companies  for  a  uniform 
period,  with  a  monopoly  of  territory,  of  thirty  years. 

'  Hadley,  207,  242,  243  ;   Dawson,  ii.,  21,  23. 


54      Railway  Control  by  Commissions 

"  A  board  of  railway  commissioners  was  established 
to  supervise  the  construction  and  operation  of  railways. 
They  were  empowered  to  call  meetings  of  the  directors 
and  officers  of  the  companies  for  the  purpose  of  laying 
before  them  objections  to  their  methods.  When  the 
companies  had  been  consulted  and  allowed  to  meet  ob- 
jections, a  report  was  to  be  made  to  the  government  de- 
partments. The  railways  were  to  be  notified  of  the 
recommendations  of  the  board,  and  if  they  failed  to 
carry  out  the  alterations  suggested,  the  right  was  reserved 
to  the  Ministry  of  Commerce  and  Public  Works  to  forfeit 
charters."  ' 

The  recommendations  of  this  commission  were 
not  at  all  satisfactory  to  the  roads.  They  were 
more  than  the  companies  could  stand.  The  state 
was  obliged  to  make  up  for  her  demands  on  the 
roads  by  granting  subsidies  and  guarantees  of  in- 
terest. There  were  many  lines  which  no  companies 
were  willing  to  undertake.  Thus  the  state  was 
forced  to  engage  in  constructing  railways.  There 
were  roads,  moreover,  which  the  state  was  obliged 
to  manage,  on  account  of  the  inability  of  the  com- 
panies to  handle  them  properly.  In  1863  the  state 
was  managing  876  miles  of  such  lines.  At  the  end 
of  1866  the  total  mileage  in  Prussia  was  5896  miles. 
Of  this  the  state  had  constructed  1890  miles,  and 
was  managing  1000  miles  of  railway  for  private  com- 
panies. The  remaining  3006  miles  were  owned  and 
managed  by  private  companies.  In  that  year  Prus- 
sia defeated  Austria,  and  the  first  part  of  the  Bis- 
marck policy  was  achieved.      Prussia  had  gained  the 

'Sterne,  Rep.,  29;  Jeans,  79.  ^  Sterne,  30. 


Railway  Regulation  in  Germany     55 

hegemony  of  Germany.  It  remained  for  him  to  ac- 
compHsh  his  second  plan,  namely,  to  isolate  France 
in  Europe.  Then  he  would  make  sure  of  his  first 
victory.  The  railways  had  played  an  important 
part  in  the  War  of  1866.  For  the  Franco-Prussian 
War  the  control  was  made  more  suitable  for  mili- 
tary purposes,  with  what  discomfiture  to  the  French 
we  have  already  seen.  The  second  victory  achieved, 
Bismarck  seized  upon  the  acquisition  of  the  roads  by 
the  newly  constituted  Empire  as  a  stroke  which 
would  exclude  Austria  once  and  for  all  from  the 
German  family  of  nations.  This  the  jealousy  of  the 
smaller  states  prevented.  As  a  thing  not  much  less 
to  be  desired,  Bismarck  then  gave  his  attention  to 
the  ownership  of  the  roads  by  Prussia.  It  is  need- 
less to  say  that  a  plan  which  Bismarck  cherished 
was  carried  out.  All  the  roads  were  purchased  by 
the  states,  with  what  results  for  Prussia  is  well 
known.  The  effect  on  the  service  is  not  unimpor- 
tant. In  both  freight  and  passenger  departments  it 
has  gained  in  promptness,  speed,  and  efificiency. 
Through  traflfic  has  undergone  a  revolution,  and 
all  discrimination  in  favor  of  central  points  or  to 
large  shippers  has  been  wiped  out.  The  effects  on 
Prussia  it  would  be  hard  to  estimate.  Some  of  the 
indirect  political  effects  will  appear  in  subsequent 
paragraphs.  The  financial  gain  to  the  state  may  be 
seen  from  the  following  paragraph  of  Gustav  Cohn. 
After  saying  that  the  management  of  Prussian  state 
railways  is  the  foremost  of  those  branches  of  ad- 
ministration which  satisfactorily  perform  the  public 
service  required  of  them,  and  at  the  same  time  meet 


56     Railway  Control  by  Commissions 

their  own  expenses  out  of  their  receipts,  he  supports 
his  assertion  by  the  following  quotation  from  the 
report  of  the  Ministry  of  Public  Works  for  1888: 

"  Although  neither  the  industrial  activity  of  the  coun- 
try for  the  past  ten  years  nor  the  development  of  traffic 
can  be  said  to  have  been  extraordinary,  yet  the  surplus 
receipts  of  the  state  railways  during  this  period  have 
been  sufficient  not  only  to  pay  the  interest  and  discharge 
the  entire  debt  representing  railway  capital,  but  have 
left,  after  this  has  been  done,  an  additional  surplus 
aggregating  in  round  numbers  330,000,000  marks.  The 
surplus  receipts  of  the  ten  years  preceding  1888  would 
suffice  to  pay  the  interest  on  the  aggregate  debts  of  the 
whole  Empire — if  that  were  Prussia's  concern."  * 

It  is  pertinently  remarked  by  von  Kaufmann  that 
from  this  amount  must  be  deducted  the  amounts 
which  the  government  would  receive  in  taxes  if  the 
roads  were  held  by  private  corporations/ 

Various  incidental  advantages  of  state  ownership 
to  Prussia  appear  when  we  consider  the  characteris- 
tics of  the  government  system.  As  the  great  ad- 
vantage to  Prussia  of  a  good  system  of  roads  was 
military,  so  is  the  chief  characteristic  of  the  service 
its  militarism.  If  you  look  out  of  a  window  of  a 
Prussian  railway  coach  in  passing  even  the  smallest 
station,  your  attention  will  be  attracted  by  a  tall, 

'  Gustav  Cohn,  Science  of  Finance,  Veblen's  translation,  §  i86, 
p.  271.  Chicago,  1895.  Quotation  from  Rep.  Afin.  Pub.  Works 
for  1888. 

^  Richard  von  Kaufmann,  Die  Eisenbahn  politik  Frankreichs,  2 
vols.     Chap.  XX.,  vol.  ii.,  Stuttgart,  1896. 


Railway  Regulation  in  Germany     57 

well-built  figure,  in  long,  skirted  army  coat  and 
visor  cap,  standing  with  heels  together,  toes  at  an 
angle  of  sixty  degrees,  left  hand  glued  to  the  side, 
the  right  touching  the  cap-visor  in  military  salute. 
It  resembles,  on  the  whole,  something  between  an 
awkward  soldier  and  a  graceful  butler.  This  is 
about  one  of  100,000  railroad  employes,'  all  of  whom 
have  served  in  the  Prussian  army,  and  are  regularly 
appointed  members  of  the  civil  service.  They  are 
especially  trained  for  the  railway  war  service.  In 
time  of  peace  they  are  under  the  orders  of  the  De- 
partment of  Railway  and  the  Ministry  of  Public 
Works.  For  military  purposes  all  the  lines  of  Prus- 
sia are  divided  into  four  groups."  Instruction  in  the 
operation  of  the  road  is  given  to  commissioned  and 
non-commissioned  officers  of  all  arms  of  the  service, 
courses  being  given  at  the  various  stations,  and  last- 
ing two  and  a  half  months.  In  time  of  war  or  for 
any  great  mobilization  the  whole  railway  system  is 
turned  over  to  the  army  to  be  worked  by  a  special 
staff  of  officers.' 

It  is  almost  unnecessary  to  say  that  this  success 
of  state  management  in  Germany  would  be  impos- 
sible without  that  excellence  in  all  branches  of  the 
civil  service  which  is  proverbially  conceded  to  the 
Germans.  Every  citizen  is  trained  in  the  army  to 
fidelity,  earnestness  of  service,  and  devotion  to  the 
interest  of  his  country.    This  semi-military  character 

'  See,  for  figures,  Hadley,  208  ;  Dawson,  i.,  66,  67. 
*  The  relation  of  road  to  the  state  in  time  of  war  was  defined  by 
the  Act  of  1871. 
3  Findlay,  285-7. 


58     Railway  Control  by  Commissions 

of  the  railway  service  makes  the  soldiers  of  the 
nation  desirable  railway  servants.  Not  only  are 
places  found  in  this  service  for  faithful  soldiers,  but 
for  army  ofificers  who  have  grown  gray  in  the 
country's  service  are  found  posts  in  which  their 
high  mental  and  moral  training  can  be  applied  to 
honorable  public  duties.  The  effect  of  this  plan 
upon  the  army  is  not  less  remarkable  than  its  effect 
on  the  railway  service.  Not  only  are  men  of  the 
highest  qualities  attracted  to  this  service  by  very 
small  pay,  but  the  army  is  kept  supplied  with  young 
blood.  It  is  no  longer  a  cruelty  to  jump  a  capable 
young  officer  over  an  aged  one.  The  railway  ser- 
vice is  one  of  honorable  retirement  ;  thus  promo- 
tion and  the  recognition  of  merit  are  made  much 
more  easy  in  the  army.' 

Another  characteristic  of  railways  which  is  an  in- 
evitable concomitant  of  militarism  and  state  control 
is  the  development  of  the  central  -  station  idea. 
Where  Paris  has  seven  large  stations,  none  of  them 
suited  to  receive  large  bodies  of  troops,  except,  per- 
haps, the  "  Gare  de  Strasbourg,"  every  large  city 
in  Germany  has  one  immense  station.  The  tend- 
ency since  1871  has  been  to  combine  all  the  smaller 
stations  into  one  central  station  and  to  make  this 
station  so  large  that  through  it  tens  of  thousands  of 
men  can  be  concentrated  at  one  central  point.  Al- 
though in  France,  at  the  present  day,  arrangements 
are  made  by  which  large  bodies  of  troops  can  be 

'  For  a  "  Review  and  Discussion  of  Recent  Criticism  of  Technical 
Administration  and  the  Civil  Service  of  Prussian  Railways,"  see 
F.  W.   Taussig  in   Q.   J.   E.,  ix.,   77-87,  October,  1894. 


Railway  Regulation  in  Germany     59 

concentrated  at  any  point  on  the  frontier  within  a 
very  few  hours,  troops  brought  from  different  points 
of  the  frontier  are  laid  down  in  seven  different  parts 
of  the  city.  The  central-station  idea  dates  from 
1 87 1.  A  comparison  of  a  Baedeker  of  1870  with 
one  of  the  present  day  will  show  to  what  an  extent 
this  idea  has  been  carried.  A  comparison  of  a  re- 
cent map  of  Paris  with  one  of  any  German  city  will 
show  at  a  glance  the  great  strategic  advantage 
which  Germany  has  derived  therefrom.  The  new 
station  at  Frankfurt  is  large  enough  for  the  mobili- 
zation and  sheltering  of  a  small  army.  It  is  the 
largest  in  the  world.  In  Strasburg  the  writer  was 
awakened  one  morning  just  before  dawn  by  the 
sound  of  martial  music.  Running  to  the  window, 
which  overlooked  the  immense  square  before  the 
railway  station,  he  beheld  what  seemed  an  entire 
army  of  infantry  march  into  the  square,  form  into 
regiments,  and  then  glide  silently  into  the  station, 
leaving  him  with  his  forehead  against  the  window- 
pane  to  wonder  how  one  railway  station  could  swal- 
low so  many  men. 

From  the  efficiency  of  the  railway  civil  service 
and  the  centralization  of  the  roads,  one  would  think 
that  the  Prussian  system  would  be  managed  by  a 
very  simple  control.  The  opposite  is  the  fact.  In 
other  European  countries  the  Ministry  of  Public 
Works  is  sufficient  to  regulate  matters.  In  Prussia, 
this  Ministry,  with  its  auxiliary  department  of  rail- 
ways, is  at  the  apex  of  a  complete  representation 
system.  The  national  legislature  takes  cognizance 
of  railway  matters;  the  Ministry  alone  can  make  all 


6o    Railway  Control  by  Commissions 

rules  of  general  import ;  but  where  conflicting  in- 
terests are  concerned,  a  new  organization  is  needed. 
It  has  two  branches;  the  one  consists  of  a  national 
council,  the  other  of  one  council  for  each  depart- 
ment or  district  where  there  is  a  "  state-direction  " 
of  railways. 

The  members  of  the  national  council  are  as  fol- 
lows: a  president  and  vice-president  appointed  by 
the  king  for  a  period  of  three  years;  nine  members 
representing  the  ministries  of  public  domain  and 
forests,  of  commerce,  and  of  public  works ;  three 
being  elected  by  each  ministry  to  serve  three  years ; 
one  member  from  each  of  the  four  cities,  Berlin, 
Cassel,  Wiesbaden,  and  Frankfurt;  two  or  three 
members  from  each  province  elected  by  the  depart- 
mental councils;  a  schedule  of  representation  being 
fixed  by  law  in  accordance  with  which  men  must  be 
so  chosen  that  they  shall  represent  in  due  proportion 
the  commercial,  industrial,  agricultural,  and  corpo- 
rate interests  of  certain  cities. 

Members  of  the  departmental  councils  are  elected 
in  the  district  to  represent  such  interests  as  the 
three  allied  ministries  above  referred  to  may  de- 
signate as  entitled  to  be  represented. 

In  this  system  every  interest,  both  national  and 
local,  has  adequate  representation.  In  the  depart- 
mental council  grievances  are  discussed,  remedies 
suggested,  and  the  effect  of  every  tariff  change  on 
every  industry  considered.  Recommendations  are 
made  as  the  case  demands  to  the  district  "  board  of 
direction  "  or  to  the  "  general  direction  "  at  Berlin, 
thence  to  the  Ministry.      In  the  event  of  arbitrary 


Railway  Regulation  in  Germany     6i 

or  unsatisfactory  action  by  the  district  "direction  " 
or  the  general  "  direction,"  matters  are  reported  to 
the"  national  council";  from  the  Ministry  appeal 
is  had  to  the  national  legislature.  The  debates  and 
resolutions  of  the  local  councils  are  printed  and  laid 
before  the  national  railway  council ;  the  debates  and 
resolutions  of  the  national  council  are,  in  turn,  sub- 
mitted annually  to  the  Reichstag  and  to  the  Minis- 
ter of  Public  Works.  Thus  the  effect  of  every 
change  is  submitted  to  the  scrutiny  and  discussion 
of  the  representatives  of  every  class  affected  thereby, 
and  every  effort  is  made  so  to  organize  the  general 
and  local  councils  that  the  authoritative  and  final  de- 
cision of  the  ministry  shall  be  a  just  and  enlightened 
one. 

For  the  amount  of  government  and  the  complex- 
ity of  organization  for  railway  control,  Prussia  leads 
the  world.  It  will  be  noticed,  however,  that  the 
idea  at  the  bottom  of  it  all  is  that  of  the  advisory 
commission.  The  government  does  not  attempt  to 
regulate  the  railways  by  the  ordinary  machinery. 
Yet  the  railway  department  of  the  executive,  which 
occupies  the  place  of  the  railway  directorate  of 
private  railways,  is  bound  by  nothing  but  the  acts 
of  the  national  legislature.  The  organization  of  the 
councils  has  no  other  power  than  to  investigate,  dis- 
cuss, and  recommend.  The  council  organization  is, 
in  fact,  a  commission.  It  is  cumbersome,  indeed, 
but  may  be  analyzed  into  a  commission  just  such  as 
we  know  in  the  Massachusetts  Commission.  We 
must  first  eliminate  the  district  councils.  They,  it 
will    be    observed,    represent    special    interests.     In 


62     Railway  Control  by  Commissions 

America  their  place  is  taken  by  municipal  councils, 
trades-unions,  and  chambers  of  commerce.  The 
difference  is,  first,  that  they  have  no  special  repre- 
sentation before  the  legislature;  secondly,  that 
they  have  no  permanent  organization  on  the  sub- 
ject of  railways.  In  Prussia  these  interests  are 
given  a  legal  status,  and  their  organization  is  so  per- 
fect that  public  management  responds  quickly  to 
every  need  of  the  nation's  industry.  Eliminate  this 
organization,  and  there  remains  the  national  coun- 
cil, a  veritable  advisory  commission.  It  is  well 
worth  study,  particularly  as  to  its  membership.  It 
is  to  be  observed  of  this  that  the  fact  that  not  all  of 
the  officials  are  paid  renders  its  membership  list  less 
formidable,  and  that  membership  is  representative. 
But  the  point  to  be  noticed  above  all  is  that  the 
council  has  no  power,  that  its  policy  is  "  tentative 
but  persistent,  that  its  key-note  is  publicity  and  dis- 
cussion." ' 

'  For  the  facts,  see  Sterne's  Rep.,  28-35. 


CHAPTER  VII 

RAILWAY    REGULATION    IN    ENGLAND 

THERE  are  many  reasons  why  the  railway  ex- 
perience of  England  has  more  lessons  for  us 
than  that  of  any  other  country.  The  most  obvious 
reason  is  that  the  customs,  political  institutions,  and 
the  body  of  rules  that  regulate  the  ordinary  inter- 
course of  men,  namely,  the  common  law,  are  almost 
the  same  for  both  countries.  Our  ideas  of  the  re- 
lation of  the  individual  to  the  government  are  very 
similar.  Further,  the  two  countries  have  in  this 
respect  had  almost  a  parallel  experience  with  their 
railways,  and  to-day  both  are  grappling  with  the 
same  problems.  If  anything,  the  experience  of  Eng- 
land foreran  ours  by  a  few  years.  At  any  rate,  we 
find  some  of  our  most  important  policies  mapped  out 
previously  in  Great  Britain.  The  existence  of  such 
relieves  us  of  the  necessity  of  finding  a  deeper 
reason  for  some  of  our  own  acts.  The  two  coun- 
tries have  gone  through  almost  parallel  periods  of 
railway  history,  and  though  England  has,  thanks 
to  her  conservatism  and  to  her  geographical  and 
political  compactness,  escaped  some  of  those  diffi- 
culties which  remain,  in  consequence,  peculiar  to 
our  experience,  yet  the  course  which  the  attitude 
of  government  to  the  railways  has  run  has  been  the 
same  in  both  countries. 

(>3 


64    Railway  Control  by  Commissions 

The  course  which  the  policy  of  the  government 
has  gone  through  in  England  is  "  one  of  the  pro- 
gressive intensification  of  control."  '  It  is  prover- 
bial that  in  the  beginnings  of  railway  construction 
both  England  and  the  United  States  gave  the  rail- 
roads free  play.  This  is  absolutely  true  of  the 
United  States,  and  if  we  recall  the  early  attitude  of 
some  Continental  countries  it  is  practically  true  of 
England.  On  the  Continent  there  were  other  con- 
siderations than  the  needs  of  industry  and  the 
convenience  of  the  public.  There  the  political  and 
military  interests  of  the  nation  became,  very  early, 
bound  up  in  the  railway  system.  In  Continental 
countries  we  have  found  many  instances  where 

"  the  state  has  been  induced  to  assume  direct  adminis- 
tration of  the  railway  system,  not  only  in  order  to  have 
unhampered  control  of  the  lines  in  case  of  mobilization 
and  war,  but  also  in  order  to  the  construction  of  the  short- 
est lines  or  lines  most  desirable  for  military  purposes." " 

It  is  probably  in  this  way,  rather  than  by  any  con- 
scious plan,  that  these  nations  escaped  the  results 
of  competition,  which  England  and  the  United 
States  experienced.  On  the  Continent,  if  we  ex- 
cept the  period  of  universal  competition  from  1866 
to  1873,  there  has  been  very  little  of  it,  and  that 
during  these  seven  years  was  the  result  of  uncon- 
trollable speculation.  Until  1870  England  advo- 
cated competition,  and  deprecated  the  consolidation, 

'J.   Mavor,  "The  English  Railway  Rate  Question,"  Q.   J.  E., 
viii.,  386,  April  i,  1894. 
'■'  Cohn,  i.,  270. 


Railway  Regulation  in  England     65 

which  was  working  itself  out,  as  dangerous.  In- 
deed, if  railroads  were  to  be  built  at  all,  competition 
was  inevitable,  for  England  was  always  served  by 
an  admirable  network  of  canals.  But  if  England 
has  suffered  from  competition,  she  has  not,  nor 
has  her  industry,  experienced  the  disadvantages  of 
government  administration. 

"The  state  which  finds  it  necessary  to  use  railways  as 
a  means  of  defence,  finds  itself  obliged,  again  and  again, 
to  assume  the  roads  of  such  portions  of  the  country  as  do 
not  give  promise  of  a  sufficient  profit  to  attract  private 
enterprise.  Here  an  expenditure  is  demanded  in  the 
interest  of  the  commonwealth  as  a  whole."  ' 

It  is  usually  made  to  the  detriment  of  industry  and 
local  interests.  In  Europe  we  find  very  little  of 
that  work  of  the  railways  so  familiar  to  us  in  the 
opening  up  of  new  country  and  the  creating  of  new 
traffic.  England,  in  its  geographical  isolation  and 
political  compactness,  did  not  need  the  railways  for 
the  purpose  of  government.  They  were  born  of  the 
needs  of  industry  and  the  public,  and  to  them  they 
were  consecrated.  The  problem  for  the  government 
was  how  to  make  the  railroads  more  useful  in  these 
directions.  The  first  plan  was  to  give  them  free 
play. 

If  the  policy  of  England  was  consciously  that  of 
allowing  freedom  of  construction  and  expansion  to 

'  For  conflicting  views  on  the  proper  relation  between  railways 
and  the  state,  see  Herbert  Spencer,  Study  of  Sociology,  4-7,  350  ff., 
2iX\A  passim.  Also  his  essay  Man  vs.  State.  Also  Henry  C.  Adams. 
"  Relation  of  State  to  Industrial  Action  "  in  Publications  American 
Economic  A ssociatio/t,  vol.  i.,  p.  S. 
5 


66    Railway  Control  by  Commissions 

the  roads,  and  if,  as  compared  with  the  experience 
of  Continental  Europe,  practical  freedom  was  left, 
yet  the  nature  of  the  English  people,  and  the  con- 
servatism of  their  government,  prevented  anything 
like  the  absolute  freedom  of  construction  and  com- 
petition that  reigned  so  long  supreme  in  the 
United  States.  The  first  restraint  came  from 
the  difificulty  of  acquiring  land.  While  anybody 
had  a  right  to  build  a  railway  on  his  own  land 
to  operate  it,  the  formalities  incident  to  regis- 
tration and  legalization  brought  the  restraining 
influence  of  the  government  into  play.  It  was 
necessary  to  get  from  Parliament  the  right  of  emi- 
nent domain  and  the  right  of  way  over  the  pub- 
lic highways.  In  the  nature  of  things  this  could 
not  be  got  until  the  road  had  the  sanction  of  Parlia- 
ment, for  eminent  domain  is  a  right  peculiar  to  rail- 
way corporations.  To  get  Parliamentary  sanction 
was  a  process  that  discouraged  many  a  would-be 
pioneer.  If  the  bill  met  any  opposition,  it  was  re- 
ferred to  a  Select  Committee  of  each  House.  It 
was  rare  indeed  that  a  bill  should  go  through  with- 
out opposition,  especially  in  the  early  days.  The 
first  period  of  English  railway  history,  from  1824  to 
1840,  was  one  in  which  every  railway  venture  was 
looked  upon  with  suspicion.  It  was  only  during 
the  second  period,  from  1840  to  1854,  that  the  atti- 
tude of  the  government  evolved  from  dilatory  ac- 
quiescence to  unlimited  concession.  Little  that 
happened  after  1854  was  of  importance  in  the  forma- 
tion of  the  railway  system,  for  during  this  period 
the    railway    network    of   England    was    practically 


Railway  Regulation  in  England     67 

created.  In  fact,  the  lines  were  for  the  most  part 
laid  down  in  1845,  ^"^1  ten  years  more  indicated 
the  forms  or  arrangement  of  consolidation.'  Oppo- 
sition to  a  railway  sanction  bill  was  at  this  time 
not  only  inevitable,  but  important.  It  met  the  bill 
at  every  stage.  In  the  hearing  before  the  Select 
Committee,  Parliamentary  agents,  counsel  for  the 
contending  parties,  sifted  and  re-sifted  evidence. 
Arguments  would  be  brought  forward  by  owners  of 
land,  especially  those  of  the  gentry,  from  town 
councils,  from  rival  railway  and  canal  companies, 
and  from  combinations  bent  on  blackmail.'  As  the 
general  public  was  suspicious  of  all  railway  ventures, 
it  was  very  difficult  for  roads  possessing  no  real 
utility  to  prove  that  they  were  needed.  Many  a 
road  which  failed  in  the  investigation  would  redeem 
itself  by  a  judicious  distribution  of  bribes.  Before 
this  test  many  a  deserving  company  fell.  Many  an 
instance  is  recorded  of  railway  bills  which  it  cost 
from  ^80,000  to  ^^"450,000  to  get  passed  in  Parlia- 
ment, where  it  came  to  a  vote  after  the  report  of  the 
Select  Committees.  When  we  add  to  the  difficulty 
of  getting  a  bill  through  Parliament,  the  fact  that 
speculation  does  not  seize  the  English  community 
so  quickly  as  it  does  the  American,  we  shall  see 
that  the  railways  did  not  have  so  free  a  rein  as  in 
America.^ 

'J.  Mavor,  Q.  J.  E.,  April,  1894;  Hadley,  158. 

^  Hadley,  164. 

^  Lalor's  Encyclopczdia,  s.  v.,  Lobby.  Edward  Bates  Dorsey, 
American  and  English  Railways  Compared,  3.  For  extreme  ex- 
amples of  slowness,  see  Acworth,  Railways  of  England.  For 
exorbitant  prices  for  land,  see  Findlay,  222. 


68     Railway  Control  by  Commissions 

Yet  competition  did  exist  in  England,  and  useless 
roads  were  built,  as  the  following  extracts  will  show. 
The  AthencBiim  wrote  in  May,  1843,  ^s  follows: 

"  With  a  view  to  the  future,  let  us  glance  at  the  facts 
as  they  now  stare  us  in  the  face.  Two  railways  in  the 
vicinity  of  London,  the  Northern  and  Eastern  and  the 
Eastern  Counties,  — to  Cambridge  and  to  Colchester, — 
are  carried  into  the  same  district.  Both  are  unsuccess- 
ful ;  one  of  the  two  is  useless  :  total  loss  ^i  20,000.  Next, 
to  the  westward,  it  is  plain  that  one  line  should  have 
served  for  the  Great  Western  and  the  South-Western,  as 
far  as  Basingstoke  and  Reading  :  loss  ;j^20o, 000.  North- 
ward, we  have  two  lines  parallel  with  each  other,  the 
Birmingham  and  Derby  and  the  Midland  Counties.  The 
latters  hould  never  have  existed  :  total  loss  ^120,000. 
Then  the  Chester  and  Crewe,  the  Newton  and  Crewe,  the 
Manchester  and  Crewe,  the  Chester  and  Birkenhead, 
three  of  them  unprofitable  :  total  loss,  without  any  advan- 
tage, ^300,000.  Then  the  Manchester  and  Preston,  the 
Newton  and  Preston,  the  Leigh  and  Bolton,  serve  the 
same  district  :  unnecessary  cost  ^100,000.  The  Man- 
chester and  Leeds  and  the  Manchester  and  Sheffield  ex- 
ist as  separate  railways  ;  loss  ;^30o,ooo.  Thus  might 
good  legislation  have  rendered  the  country  two  essential 
services.  The  whole  traffic  at  present  existing  might 
have  been  concentrated  on  the  remaining  lines  by  a  judi- 
cious selection,  so  that  they  would  have  been  rendered 
more  profitable  to  the  country  which  they  serve,  while 
these  six  million  pounds  might  have  remained  for  invest- 
ment. With  this  money  at  its  disposal,  our  government 
might  have  had  the  following  lines  for  conveyance  of 
mails,  which  it  eminently  wants,  namely,  a  mail  line  from 
Exeter  to  Plymouth,  and   its  continuation   for  the  same 


Railway  Regulation  in  England     69 

purpose  to  Falmouth  ;  and  a  mail  line  to  Ireland  by  the 
way  of  Chester  and  Holyhead  and  a  mail  line  north  to 
Scotland.  These  great  lines  would  have  been  feeders  to 
those  which  already  exist,  would  have  conferred  great 
benefits  on  the  country,  and  would  have  cost  no  more 
than  has  already  been  paid  for  partial  communication."  ' 

The  system  here  described  is  one  of  disconnected 
short  roads.  The  coosolidation  of  the  roads  was 
looked  upon  with  suspicion.  Competition  was  what 
the  government  wanted,  but  it  would  like  it  and 
some  arrangements  for  through  traffic  also.  It  was 
still  necessary  for  goods  to  be  transhipped  and  for 
passengers  to  buy  separate  tickets  when  travelling 
any  distance.  We  shall  see  that  in  bringing  about 
joint  rates,  in  consolidating  the  disconnected  sys- 
tem, and  in  preventing  ruinous  competition,  the 
railway  companies  themselves  proved  more  efficient 
than  the  government.  This  will  be  shown  when 
we  examine  the  Railway  Clearing-House  and  its 
work.  The  following  quotation  will  show  that  the 
government  got  the  full  effects  of  competition: 

"  In  1862,  the  year  of  the  great  exhibition,  the  third- 
class  return  fare  from  Leeds  to  London  came  down  to 
five  shillings.  (To-day  single  fare  is  about  a  pound). 
The  following  year  an  attempt  was  made  to  amalgamate 
this  road  with  the  Midland,  but  Parliament  refused  its 
consent." 

Under  these  circumstances  new  roads  were  allowed 
to  be  built,  with  what  justification  is  shown  by  the 

'  Quoted  in  Acworth,  Railways  of  England,  7. 


JO    Railway  Control  by  Commissions 

fact  that  one  of  them  had  its  rolling  stock  seized  for 
debt,  a  process  which  was  promptly  declared  illegal 
by  Parliament,  lest,  perhaps,  such  a  policy  might 
make  competition  less  furious. 

"  In  1866  the  war  broke  out  again.  A  man  could  book 
from  York  to  London,  first  class,,  five  shillings,  second 
class,  two  shillings  sixpence — about  one  seventh  present 
fare.  This  time  the  intermediate  stations  took  part  in 
the  war.  The  fare  from  Peterborough  was,  for  first  class, 
two  shillings,  for  second  class  one  shilling.  In  1862  the 
fare  from  Lancashire  to  London  had  been  two  shillings 
sixpence  throughout  the  summer.  Even  as  late  as  187 1 
the  Midland  was  compelled  to  carry  coal  from  South 
Yorkshire  to  London  at  one  third  the  normal  price."  ' 

The  above  quotations,  I  believe,  show  both  the 
need  of  intelligent  government  control  and  the  ab- 
sence of  it.  Mavor  has  said  that  the  English  rail- 
way regulation  was  from  its  beginning  one  of  limited 
ownership  and  controlled  administration.  That  this 
was  true  of  anything  but  the  reservation  of  the 
power  of  the  government  to  fix  maximum  rates 
seems  to  me  incapable  of  demonstration.  Even  this 
reservation  has  been  called  into  question  as  not  at 
first  intended  by  the  government.  It  has  only  re- 
cently become  important.  I  prefer,  therefore,  to 
interpret  Mavor's  dictum  that  the  course  of  railway 
regulation  by  the  government  has  been  one  of  pro- 
gressive intensification  of  control  as  meaning  that 
the  progressive  started  from  approximate  absence 
of    control.       I    propose    to   trace    the   course   of 

'  Acworth,  195,   386. 


Railway  Regulation  in  England     71 

regulation  with  the  purpose  of  showing  how  much 
of  it  has  been  effective  and  how  much  the  railroads 
have  done  for  themselves. 

A  phase  of  government  regulation  particularly 
instructive  to  us  is  the  development  of  the  Railway 
Clearing-House.'  This  organization  had,  before 
1873,  settled  some  of  the  most  perplexing  questions 
of  railway  management.  It  was  the  invention  of 
a  railway  man,  a  Mr.  Morison,  who  later  became  a 
member  of  Parliament.  In  1842,  when  he  was 
audit  clerk  for  the  London  and  Birmingham,  no 
adequate  arrangements  existed  for  the  division  of 
traffic,  the  assignment  for  the  payment  of  through 
rates,  or  any  arrangement  for  proper  handling  of 
through  traffic.  When  roads  began  to  run  in  con- 
nection with  each  other,  the  necessity  of  buying 
separate  tickets,  of  transhipping,  and  re-invoicing 
freight,  became  intolerable.  The  companies  had 
different  modes  of  keeping  their  accounts,  and  as 
no  one  had  authority  to  impose  uniformity,  there 
were  difficulties  in  agreeing,  figures  which  caused 
continual  recriminations,  and  charges  of  unfair  prac- 
tice. The  roads  were  unable  to  work  together,  and 
the  public  suffered.     The  idea  now  was  to  establish 

'  Hadley  refers,  159  «.,  to  Report  of  Evidence  befoj-e  Joint  Select 
Committee,  \'i>'T2,  Appendix,  839-945,  as  best  account  of  Railway 
Clearing-House.  Not  having  access  to  this,  I  have  used  The  Rail- 
way  Clearing-House,  Edward  McDermott,  F.S.S.,  pamphlet  re- 
published from  Railway  Ne^vs  and  Joint  Stock  Journal,  1889  ;  also 
Leisitre  Hour,  vol.  vxiii.,  223,  224,  vol.  xxii.,  477,  478.  This  maga- 
zine contains  a  serial  discussion  of  English  Railways.  The  Clearing- 
House  is  described  in  No.  12.  The  series  begins  vol.  xviii.,  356. 
year  1873. 


72     Railway  Control  by  Commissions 

a  central  office  somewhat  upon  the  hnes  of  the 
Bankers'  Clearing-House,  an  institution  which  had 
then  been  estabHshed  more  than  half  a  century. 
This  office  should  receive  the  returns  of  through 
traffic  from  all  the  companies,  impartially  make  the 
apportionments  and  declare  the  balance  due  to 
each.  Number  takers  were  to  be  stationed  day  and 
night  at  the  junctions  to  record  the  movement  of 
trains,  so  that  the  system  works  accurately  and  with- 
out friction.  The  lead  in  the  movement  was  taken 
by  George  Carr  Glyn,  Chairman  of  the  London  and 
North-Western.  When  it  was  founded  in  1842  it 
employed  only  four  clerks,  and  superintended  the 
traffic  of  four  railways,  unconsolidated  ones  at  that. 
In  1891  it  was  caring  for  all  the  railway  companies 
in  Great  Britain,  having  in  the  aggregate  nearly 
17,000  miles  of  railway.  In  1890  the  number  of 
traffic  settlements  made  was  9,542,000.  The  value 
of  the  receipts  dealt  with  was  nearly  ^20,000,000, 
through  traffic  over  different  roads,  be  it  remem- 
bered. In  1850  it  had  already  attained  such  import- 
ance and  usefulness  that  it  was  incorporated,  and  an 
Act  of  Parliament  passed  defining  its  powers  and 
clothing  it  with  greater  responsibility.  The  arrange- 
ment proved  so  beneficial  that  it  was  perfected  in 
1859  by  the  passage  of  the  "  Railway  Companies' 
Arbitration  Act,"  the  purpose  of  which  was  to  pre- 
vent useless  and  expensive  litigation.  It  was  pro- 
vided that  any  two  or  more  companies  might,  by 
writing  under  their  common  seal,  agree  to  arbitrate 
any  differences  in  which  they  were  mutually  con- 
cerned and  which  they  might  legally  agree  to  settle 


Railway  Regulation  in  England      72> 

among  themselves.  The  arbitrators  were  to  have 
power  to  call  for  the  production  of  books  and  docu- 
ments, to  administer  oaths  and  hear  evidence,  their 
decisions  to  be  final  and  enforceable  in  any  Superior 
Court  of  Law.  By  these  arrangements  such  an 
esprit  de  corps  has  been  created  that  unfair  and 
secret-rate  agreements  are  unheard  of.  The  Clear- 
ing-House  has  made  possible  the  monthly  rate- 
making  conferences  where  nothing  binds  but  honor, 
and  that  most  efTectively.' 

Thus  the  railways,  left  almost  to  themselves,  be- 
tween 1854  and  1873,  forestalled  the  government  in 
the  consolidation  of  the  roads,  perfecting  through 
rates,  avoiding  competition,  and  adopting  uniform 
accounts.  The  monthly  conferences  have  done 
away  with  the  necessity  of  discrimination.  Sir 
Thomas  Farrer,  speaking  of^cially  for  the  Board  of 
Trade  in  1872,  said:  "  One  sees  that  there  are  all 
sorts  of  suspicions  of  unfair  favor  on  the  part  of  the 
traders,  but  in  almost  every  case  there  is  good 
reason  for  what  is  done.""  All  these  questions 
were  settled  by  the  working  of  the  interest  of 
the  railway  companies  themselves.'  It  might  be 
shown  in  a  very  interesting  manner  that  the  honor 

'  Aldace  F.  Walker,  Railway  Associations,  4,  5  ;  Acworth,  Rail- 
ways of  England,  138  ;  Hadley,  159  ;  Lalor's  Encyclopcedia,  s.  v., 
Clearing-House  end  of  article;  Findlay,  207,  210,  213,  214;  Had- 
ley, 159.  Acworth  gives  striking  examples  of  the  influence  of 
the  conferences.  There  are  ninety-three  roads  in  England  and 
Scotland. 

'  Quoted  in  Acworth,   The  Railways  and  the  Traders. 

^  Ideal  competition  seems  to  exist  between  the  London  and  North- 
western and  the  Midland,  parallel  lines  from  London  to  Liverpool, 


74    Railway  Control  by  Commissions 

agreements  of  the  companies,  far  from  depriving 
the  public  of  the  advantages  of  competition,  protect 
them  from  its  disadvantages,  and  enable  the  roads 
to  compete  fairly.  Mavor  points  out  that  the  only 
questions  left  for  discussion  after  1872  were,  from 
1872  to  1873,  that  of  undue  preference;  after  1880, 
a  differential  mileage  rate,  or  the  long-  and  short- 
haul  question;  and  since  1888,  exorbitant  rates, 
with  differential  rates  as  a  subordinate  question. 
The  first  of  these  questions  was  settled  by  the  ac- 
quittal of  the  roads;  the  second  is  as  difficult  for  the 
roads  as  for  the  government,  being  in  some  sort  an 
ethical  and  political  one;  the  third  the  government 
has  attempted  to  settle,  at  great  expense,  and  after 
all  failed  to  do  in  three  years  what  popular  indigna- 
tion did  in  a  month.'  It  will  be  shown,  when  we 
come  to  the  attempts  at  government  control  of 
rates,  that  they  would  better  be  left  to  the  roads 
and  the  traders.  In  the  work  of  self-regulation  the 
companies  have  no  doubt  been  aided  and  stimulated 
by  the  discussions  of  Parliament,  but  the  motive  of 
their  best  work  will  be  found  in  the  working  out  of 
their  self-interest  and  their  public  spirit. 

The  above  account  of  the  work  of  the  railways  in 
regulating  their  own  affairs  sets  forth  the  course  of 
the  companies  as  if  they  were  acting  without  re- 
straint. Admittedly  the  influence  of  political  affairs 
and  the  attitude  of  the  government  were  important 
in  shaping  this  course.  I  believe,  however,  that 
very  little  departure  from  the  truth  has  been  made 
in  simplifying  this  account,  and  this  will  be  remedied 

'See  Mavor,  Q.  J.  /:.,  vol.  viii.,  April,  1S94. 


Railway  Regulation  in  England      75 

by  an    exposition    of   the   conduct   of   the  govern- 
ment. 

We  have  seen  the  repressive  influence  of  the  diffi- 
culty and  expense  of  getting  a  charter  for  a  railway. 
In  the  charter  the  state  reserved,  besides  certain 
rights  of  inspection  to  the  Board  of  Trade,  the  right 
of  Parliament  to  fix  the  maximum  rates  and  to  pre- 
vent a  dividend  exceeding  ten  per  cent.  The  diffi- 
culty lay  in  providing  machinery  to  enforce  these 
reservations.'  In  1840  powers  were  given  to  the 
Board  of  Trade  not  unlike  those  exercised  by  the 
Massachusetts  Commission,  Neither  this  body  nor 
the  permanent  Select  Committee  on  Railways  could 
prevent  the  roads  from  dividing  enormous  profits  in 
large  salaries.  The  idea  of  a  railway  commission 
had  been  held  in  England  for  many  years.  The 
jealousy  of  Parliament  to  any  coordinate  power  and 
the  desire  of  retaining  regulation  by  its  Board  of 
Trade  prevented  the  realization  of  the  idea.  So,  in 
1842,  the  powers  of  the  Board  of  Trade  were  further 
defined,  and  until  1844  it  divided  the  surveillance 
of  railways  with  the  Select  Committees  of  the  two 
Houses.  In  1844  the  Select  Committee  of  the 
House  of  Commons  proposed  the  appointment  of  a 
permanent  special  commission,  to  act  as  a  commit- 
tee to  investigate  applications  for  charters.  This 
commission  worked  for  about  a  year."  During  this 
year  the  country  experienced  a  railroad  mania  that 
was  never  repeated,  and  it  began  to  be  felt  that  the 
railways  deserved  much  more  attention,  not  only 
than  Parliament  had  given  them,  but  than  it  had 

'  Hadley,   171.  •■'  Ibid.,    158. 


76    Railway  Control  by  Commissions 

reserved  to  itself  the  right  to  give  to  them.  In  1844, 
the  Select  Committee  of  the  Commons,  of  which 
Mr.  Gladstone  was  Chairman,  had  got  Parliament 
to  adopt  a  resolution  that  all  railway  bills, — that  is, 
charters, — which  should  come  before  Parliament 
contain  a  clause  providing  that  nothing  in  the  char- 
ter should  exempt  the  railway  from  the  provisions 
of  any  general  act  which  might  be  passed  during 
that  or  any  future  session  of  Parliament.  This 
resolution  was  adopted  in  anticipation  of  the  general 
law  passed  in  1845.  This  general  railway  law 
covered  those  matters  the  regulation  of  which  could 
be  provided  for  at  that  time  by  a  law  of  general  ap- 
plication. It  provided  for  the  condemning  of  lands, 
specified  rules  for  operating  the  roads,  fencing  the 
roadways,  and  dealing  with  public  highways.  The 
commission  of  1844  was  revived  without  any  new 
powers.  It  lasted  until  1852,  making  an  elaborate 
report  to  Parliament.  No  new  legislation  resulted 
and  no  new  restraint  was  placed  upon  the  roads. 
But  in  1845  Mr.  Gladstone  was  appointed  President 
of  the  Board  of  Trade.  He  had  proved  himself  de- 
voted to  progress  in  railway  matters  as  member  of 
the  Select  Committee  of  the  Commons.  He  had 
proposed,  as  chairman  of  that  committee,  that  a  per- 
manent commission  be  established  to  arbitrate  rail- 
way disputes.  As  the  position  to  which  he  was  now 
appointed  was  a  Cabinet  post,  much  was  expected  of 
him.  He  immediately  carried  through  his  first  Cheap 
Trains  Act.'  It  provided  for  "  Parliamentary," 
or    third-class    accommodation    trains,     that    they 

'  Acworth,  Hiiihways    of   EiiglauJ,    196;    Hansard,  Ixxiii.,   519; 


Railway  Regulation  in  England 


/  / 


should  be  run  over  the  lines  of  the  companies 
at  least  once  each  day  in  each  direction,  and  that 
they  should  stop  at  every  station.  In  exacting  this 
concession,  Mr.  Gladstone  had  popular  opinion  be- 
hind him.  In  1846  legislation  was  proposed  provid- 
ing means  to  prevent  companies  from  buying  off 
canal  competition  and  destroying  the  canals.  The 
public  was  opposed  to  steps  by  the  railways  which 
should  destroy  production,  yet  was  intensely 
wrought  up  over  the  results  that  actual  competition 
was  working.  Pamphlets  were  actively  circulated. 
In  one  of  these,  an  open  letter,'  addressed  to  the 
Chairman  of  the  London  and  North-Western  Rail- 
way, a  plea  was  made  for  the  establishment  of  a 
Railway  Board.  It  was  not  desired  that  this  board 
should  have  absolute  power  to  enforce  its  decrees. 
That  would  not  be  tolerated,  nor  was  it  necessary  for 
public  protection.  It  should  have  power  merely  to 
recommend  arrangements  calculated  to  increase  con- 
venience and  extend  the  accommodation  of  the  pub- 
lic. It  should  be  its  duty  to  suggest  the  use  of  the 
best  machinery  known,  to  suggest  increasing  of  speed 
and  reduction  of  rates.  It  should  have  power  to 
compel  the  roads  to  refer  to  arbitration  any  question 
upon  which  they  and  the  Railway  Board  disagreed. 
In  order  to  prevent  competition  "  joint-purse  " 
agreements  might  be  adopted.'     The  present  writer 

Sterne,  5  ;  The  Act,  Patterson'' s  Practical  Statutes  for  1844  ;  Findlay, 
241 ;  Acworth,  Railways  of  England,  35,  53,  355  ;  Sterne,  6. 

'By  George  Carr  Glyn,  former  President  L.  and  N.-W.,  founder 
of  the  Railway  Clearing-House. 

*"  Railway  Competition,"  a  letter  to  George  Carr  Glyn,  Esq., 
M.P.,  London,  1S49,  i'^.  23. 


/S     Railway  Control  by  Commissions 

believes  that  this  was  wise  counsel.  It  was  the  pro- 
posal of  a  commission  such  as  Massachusetts  adopted 
with  such  good  results  twenty  years  later.  If  this 
advice  had  been  followed,  the  evils  from  which  Eng- 
land suffered  until  1870,  when  the  railways  had 
perfected  their  own  organization,  would  have  been 
settled  twenty  years  earlier.  Such  is  the  value  of 
the  counsel  of  one  wise  man.  The  public  had  little 
for  which  to  thank  the  government.  This  counsel 
was  not  acted  upon.  It  took  its  place  with  all  the 
other  influences  which  were,  within  a  few  years,  to 
produce  England's  first  important  piece  of  railway 
legislation.  The  elaborate  report,  in  1849,  of  the  Se- 
lect Committee  of  the  Commons,  dwelt  on  means  of 
protecting  investors  in  railway  building  from  having 
their  capital  diverted  to  other  objects.  This  report 
brought  out  clearly  the  need  of  that  important  legis- 
lation toward  which  forces  had  been  working  for  ten 
years.  In  1854  this  Committee,  of  which  Mr.  Glad- 
stone and  Mr.  Cardwell  were  the  most  active  mem- 
bers, got  through  Parliament  the  Railway  and  Canal 
Traffic  Act  of  1854. 

This  act,  called  the  Cardwell  Act,  is  for  many 
reasons  the  most  important  piece  of  legislation  to 
which  England  and  America  have  ever  been  sub- 
jected. It  made  the  first  declaration  of  the  common 
law  as  to  railway  carriers.  It  gave  the  color  to  all 
subsequent  English  legislation.  It  failed  to  provide 
for  the  commission  for  which  Mr.  Gladstone  and 
Mr.  Cardwell  had  wished.  Amended  in  this  and 
other  respects,  it  was  supplemented  by  the  Regula- 
tion   of    Railways   Act    of     1873.     This    act    was 


Railway  Regulation  in  England      79 

incorporated  with  the  Railway  and  Canal  Traffic 
Act  of  1888,  and  is  thus  the  basis  of  the  commission 
system  in  England.  We  shall  find,  later,  that  the 
Cardvvell  Act  of  1854  is  the  basis  of  both  American 
railway  law  and  American  railway  legislation.  Such 
is  the  legislator's  tendency  to  copy.  We  shall  thus 
be  repaid  for  considering  thoroughly  the  Cardwell 
Act  of  1854.' 

Common  carriers  were  the  particular  object  of  its 
provisions.  They  were  defined  as  railways,  stations, 
canals,  wharves,  and  termini  used  in  public  traffic, 
and  the  owners  and  lessees  thereof,  or  any  contractor 
working  railway  or  canal  navigation  carried  on  under 
the  powers  of  any  Act  of  Parliament.  They  were 
ordered  to  make  arrangements  for  receiving  traffic 
and  forwarding  it  without  unreasonable  delay.  In 
case  of  failure  to  do  this  parties  injured  might  ap- 
peal to  the  courts.  Discrimination  was  forbidden 
against  individuals  and  between  railways  demanding 
through  traffic  agreements.'' 

These  regulations  have  remained  the  basis  of  rail- 
way legislation.  Yet  at  first  they  amounted  to  little 
more  than  a  declaration  of  the  law.  No  adequate 
machinery  was  provided  for  carrying  it  out.'  Such 
questions  always  had  been  within  the  province  of 


'  Acworth,  in  Mr.  Cain's  Compendium,  267,  268  ;  see  the  Act, 
Railway  and  Canal  Traffic  Act,  1854,  17,  18,  Victoria,  c.  31  ; 
Patterson's  Practical  Statutes  ;  Dabney,  Public  Regulation  of  Rail- 
-ways,  179  ;  Sterne,  Report,  g. 

«  Dabney,  178. 

^Patterson,  Statutes,  1873,  57;  Statutes  at  Large,  U.  K.,  vol. 
xxii.,  c.  xxxi.,  72;  Sterne,  Report,  8  ;   Hadley,  169,  170. 


So    Railway  Control  by  Commissions 

the  Board  of  Trade.  It  was  supposed  that  disputes 
arising  under  the  act  should  be  decided  by  that 
body,  and  in  the  original  draft  it  was  so  provided. 
The  railways  brought  all  their  influence  to  bear 
upon  the  Commons,  and  succeeded  in  having  an 
amendment  adopted  giving  jurisdiction  over  railway 
disputes  to  the  Court  of  Common  Pleas.  The 
justices  of  this  court  disclaimed  any  capacity  for  the 
work.  It  entertained  several  complaints  of  undue 
preference  and  granted  injunctions,  but  when  pressed 
for  an  opinion  the  court  soon  found  that  it  had  no 
means  of  determining  whether  preference  was  undue 
or  not.  In  this  way  were  matters  allowed  to  drift. 
Special  laws  were  passed  in  abundance.  In  1865  a 
Royal  Commission  was  appointed  to  investigate. 
It  reported  in  1867: 

"  Three  thousand  statutes  have  been  passed,"  it  said, 
"  defining  and  regulating  the  powers  of  the  railway  com- 
panies of  Great  Britain.  Consequently  the  rights  of  the 
public  are  scattered  throughout  all  these  acts.  The 
existing  machinery  for  the  regulation  of  railways  is  use- 
less." ' 

During  the  period,  then,  from  1854  to  1873,  the 
railroads  were  practically  left  to  themselves.  Guided 
by  their  own  interest  they  had,  as  we  have  seen, 
completed  the  consolidation  of  the  railway  system, 
done  away  with  competition,  and  adopted  a  uniform 
system  for  accounting  between  themselves.  Both 
the  commission  of  1867  and  the  committee  of  1872 
acquitted  the  roads  of  undue  preference.^     In  the 

'  Quoted  in  Mass.  R.  R.  Commission,  jst  Report,  1870,  44. 
"  See  quotation  in  Acworth,  Railways  of  England,  95-100. 


Railway  Regulation  in  England     8i 

same  period  the  government  had  made  gross  mis- 
takes of  judgment ;  the  machinery  it  constructed  for 
regulation  was,  on  the  whole,  either  useless  or  in- 
efficient and  clumsy,  and  at  the  end  of  the  period 
the  government  found  itself  in  more  serious  need  of 
regulation  than  the  railways.  How  the  two  systems 
compared  in  their  effect  on  the  roads  after  1871, 
when  the  permanent  commission  was  established, 
we  shall  see  in  the  succeeding  paragraphs;  but  we 
must  remember  that  by  1873  the  formative  period 
had  closed.  We  shall  understand  why  the  com- 
panies did  so  well  if  we  remember  the  sort  of  men 
that  guided  the  self-interest  of  the  companies. 
Among  the  men  who  acted  as  presidents  of  railway 
companies  were  Lord  Chandos,  the  Duke  of  Buck- 
ingham, General  Anson,  Sir  George  Carr  Glyn, 
Admiral  Moorson,  Sir  Richard  Moon,  Sir  Daniel 
Gooch,  and  Lord  Salisbury.  More  important  in 
the  regulation  during  this  critical  period  than  de- 
cree or  statute  was  sensitiveness  to  public  opinion, 
and  to  public  needs,  and  to  public  spirit.  We  shall 
now  ask  what  effect  these  had  in  settling  the  ques- 
tions remaining  unsettled  after  1870. 

They  were  well  defined.  The  principle  of  com- 
bination had  at  last  been  accepted  by  the  govern- 
ment as  not  only  inevitable  but,  on  the  whole, 
unobjectionable.'  The  question  of  undue  prefer- 
ence was  settled  between  1872  and  1873.  The 
engrossing  question  from  that  time  till  1880  was 
that  of  differential  mileage  rates,  the  long  and 
short-haul  question.       The  railways  had  regulated 

'  Sterne,  Report,  12. 


82     Railway  Control  by  Commissions 

matters  so  that  they  themselves  should  not  suffer 
from  competition ;  now  each  trader  and  each  dis- 
trict whose  industry  was  affected  by  railway  rates 
wished  to  adopt  the  railway  policy  to  its  own  needs. 
While  the  Londoners  wanted  low  rates  on  American 
■  cereals  and  mutton,  the  farmers  wanted  protection. 
Here  was  work  for  a  commission  with  power  of  arbi- 
tration. All  the  provisions  of  the  Act  of  1 873  centred 
on  the  commission  appointed  by  it.  After  seven 
years  of  the  system  this  question  dropped  into  sub- 
ordinate importance,  while  the  public  was  exercised 
over  the  question  of  exorbitant  rates  and  the  simpli- 
fication of  classification.'  This,  then,  was  the  work 
to  which  the  permanent  commissions  provided  for 
by  the  Act  of  1873  and  the  Act  of  1888  were  called. 
Let  us  consider,  first,  the  Act  of  1873. 

The  Act  applied  the  Act  of  1854  to  the  commission 
system.  A  Commission  of  three  was  appointed  to 
last  five  years.  They  were  to  receive  a  salary  of 
^^3000  each,  and  were  to  be  assisted  by  two  assistant 
commissioners  at  a  salary  of  ^^"1500,  and  to  hold 
oflfice  during  good  behavior.  One  of  the  Commis- 
sioners must  be  a  man  of  experience  in  railway 
management,  another  must  be  a  lawyer.  Pursuant 
to  this  provision,  James  McJMamara,  Henry  Tyr- 
whitt,  and  Sir  Frederick  Peel  were  appointed.  To 
this  Commission  was  transferred  all  the  power  vested 
by  the  Cardwell  Act  in  the  Court  of  Common  Pleas 
and  by  the  Railway  Clauses  Act  of  1863  in  the 
Board  of  Trade.  But  these  powers  were  much  ex- 
panded.    The  Commission  was  to  decide  whether  a 

'Mavor,  Q.  J.  E.,  April,  1S94. 


Railway  Regulation  in  England     S^ 

through  rate  was  reasonable,  and  in  cases  of  dispute 
to  fix  terminal  charges.  Disputes  between  two 
rival  companies  might  be  brought  before  them,  as 
well  as  those  between  the  railways  and  other  com- 
panies. Any  dispute  whatsoever  to  which  a  railway 
was  a  party  might  be  brought  to  them  for  decision. 
Municipal  authorities  were  given  a  status  before 
them,  and  they  were  to  decide  between  the  govern- 
ment and  the  companies  in  dispute  over  remunera- 
tion for  carrying  the  mail.  They  were  to  sanction 
or  prohibit  all  agreements  between  railway  com- 
panies, and  might  even  issue  general  orders.  They 
were  to  order  railway  companies  keeping  canals 
closed  to  avoid  water  competition  to  desist,  they 
were  to  order  the  publication  of  rates.  To  perform 
these  functions  the  Commissioners  might  sit  as  a 
court,  make  investigations,  hear  evidence,  adminis- 
ter oaths,  and  require  the  production  of  books  and 
witnesses.  To  prevent  abuse  of  the  right  of  appeal, 
the  decision  of  the  Commission  was  to  be,  with  slight 
limitations,  final.  An  annual  report  was  to  be  made 
to  the  Queen  and  to  Parliament.' 

These  powers,  apparently  so  wide,  suffered  the 
following  limitations  at  the  outset:  First,  the  rail- 
way companies  were  by  their  charters  empowered  to 
make  any  charges  under  a  fixed  maximum.  Second, 
the  burden  of  proving  that  a  rate  unnecessary  and 

'The  Act  of  1S73,  Tatterson's  Practical  Statutes  for  1873,  56^., 
or  Public  General  Statutes,  1873,  238  _^.;  (i)  see  "The  Toll  and 
Maximum  Rate  Clauses  in  the  Railway  Acts,"  given  in  Grierson, 
Appendix,  Ixv. ;  (2)  Findlay,  229  ;  (3)  Ibid.,  224  ;  Acworth,  The  Rail- 
ways and  the  Traders,  176;   Hadley,  i|S5,  156;  Sterne,  Report,  I2. 


84     Railway  Control  by  Commissions 

preferential  was  upon  the  complainant  or  the  Com- 
mission. The  burden  was  placed  upon  the  roads  by 
the  Act  of  1888.  Third,  in  deciding  this,  the  Com- 
mission was  balked  by  their  inability  to  find  out 
what  profits  the  roads  were  making.  The  English 
railway  companies  have  never  made  annual  returns. 
Although  the  Board  of  Trade  has  always  had  power 
to  call  for  various  statistical  reports,  the  system  of 
returns  has  never  been  adopted.  The  roads  could 
very  honestly  plead  unreadiness.  They  have  always 
kept  unready,  and  much  complaint  has  been  made 
of  the  secrecy  of  their  accounts.  They  have  never 
furnished  those  statistics  which  a  Commission  might 
use  against  them  in  the  interest  of  the  public. 
Finally,  appeal  was  easy,  and  finality  of  the  Com- 
mission's finding  could  be  thus  evaded.  By  writ  of 
mandamus  from  a  court  of  appeal  the  Commission 
could  be  compelled  to  state  a  case.  This  could  be 
made  the  subject  of  an  action  in  the  higher  court. 
The  case  would  thus  be  taken  out  of  the  hands  of 
the  Commission.' 

This  Commission  justified  its  existence.  At  the 
expiration  of  the  first  period  of  five  years  its  term 
was  extended,  and  the  system  practically  made 
permanent.  Yet  authorities  have  differed  on  the 
value  of  its  work.  In  July,  1882,  a  Select  Commit- 
tee for  the  investigation  of  rates  and  fares  reported 
that  they  found  no  reason  for  reversing  the  legisla- 
tion of  1873  ^^^  returning  to  the  purely  legal  tribu- 
nal, which,  as  the  Court  of  Common  Pleas,  was 
abandoned  in  that  year  as  a  failure.^     Simon  Sterne 

'  Hadley,  155,  156.  ''Quoted  in  Sterne,  15. 


Railway  Regulation  in  England     85 

concluded  from  his  investigation  in  1886  that  the 
work  of  the  Commission  was  satisfactory.  Adams 
said  that  the  very  existence  of  the  Commission  pre- 
vented the  causes  of  disputes  jrom  arising.'  It  was 
suggested,  however,  that  the  unequal  footing  of  the 
parties  prevented  disputes  even  where  there  was 
sufificient  cause  for  complaint.  It  is  evident  that 
something  was  at  work  to  prevent  disputes  from 
being  broached  by  the  public.''  In  1886,  eleven  out 
of  the  twelve  cases  instituted  were  brought  by  one 
railway  company  against  another;  in  1887,  six  out 
of  twelve.  Hadley,  who  is  inclined  to  look  on  the 
work  of  the  Commission  from  the  dark  side,  admits 
that  the  existence  of  such  a  power  constitutes  a 
check  on  arbitrary  action  in  general.  The  Commis- 
sion, he  says,  was  not  a  total  failure.  The  Select 
Committee  of  1882  recommended  that  the  jurisdic- 
tion of  the  Commission  be  extended.  Adams, 
Sterne,  and  Hadley  thought  that  what  the  Commis- 
sion system  needed  was  revising  both  as  to  powers 
and  as  to  formation.^ 

This  revision  came  in  the  Act  of  i883.  Its  object 
was  to  give  the  public  more  consideration,  (i)  in  the 
making  of  the  rates,  (2)  in  their  publication,  (3)  in 
disputes  arising  concerning  them.  The  Acts  of 
1854  and  1873  were  confirmed  and,  with  certain 
amendments,  were  incorporated  with  the  new  pro- 
visions, under  the  title  of  the  Railway  and  Canal 
Traffic  Act  of  1888.  The  most  urgent  reasons  for 
this  Act  were  not  that  rates  were  too  high,  but  that 
people  thought  they  were,  and  could  not  understand 

'Adams,  93.  ^  Mavor,  293.  ^Hadley,  173-176. 


86     Railway  Control  by  Commissions 

the  principles  on  which  they  were  laid.  It  was  a 
contest  of  the  traders  against  the  railways.'  The 
traders  wanted  publicity  and  a  chance  to  discuss  the 
rates.  The  classification  had  become  unintelligible. 
The  Clearing-House  classification  had  grown  by  ac- 
cretion until  it  reached  four  thousand  items.  The 
rates  had  multiplied  until  they  had  become  hun- 
dreds of  millions.  The  traders  wished  this  simpli- 
fied, and  they  wished  to  be  represented  in  the 
framing  of  the  new  schedules.  They  won  a  victory. 
The  Act  of  1888  intrusted  the  Board  of  Trade  with 
the  formulation  of  a  thorough-going  revision  alike  of 
classification  and  of  rates.  It  provided  (i)  that 
every  railway  company  should  submit  to  the  Board 
of  Trade  within  six  months  after  the  passing  of  the 
Act  a  revised  classification  of  merchandise  traffic  and 
a  revised  schedule  of  maximum  rates  for  each  speci- 
fied class.  These  rates  were  to  be  put  to  the  fol- 
lowing test :  First,  they  were  discussed  in  public 
sittings  of  the  Board  of  Trade,  where  all  objections 
and  arguments  were  to  be  presented.  Second,  the 
Board  of  Trade  would  come  to  an  agreement  with 
the  railways,  and  the  result,  embodied  in  a  "  Pro- 
visional Order  Bill,"  would  be  presented  to  Parlia- 
ment. Third,  where  the  Board  of  Trade  and  the 
railways  had  disagreed,  Parliament  would  make  an 
adjustment.  The  final  schedule  would  be  promul- 
gated as  an  Act  of  Parliament. 

(2)  The  essential  difficulty  of  the  long-  and  short- 
haul    question    was    decided    by    a    prohibition    of 

'  Sir  Thomas  Farrer  in  Acwortli,   The  Railways  and  the  Traders, 

1808. 


Railway  Regulation  in  England     87 

different  rates  for  domestic  and  foreign  commodi- 
ties. 

(3)  The  burden  of  proving  that  charges  are  reason- 
able and  not  discriminating  is  placed  upon  the  rail- 
way. 

(4)  Town  councils,  chambers  of  commerce,  almost 
every  constituted  body,  may  take  advantage  of  the 
foregoing  provision ;  being  given,  on  application, 
the  status  of  plaintiff  to  the  Railway  Coimmssion. 

(5)  This  body  was  reconstituted,  so  as  to  consist 
of  two  appointed  members  and  three  ex  officio  mem- 
bers alternating  in  service.  One  of  the  appointed 
members  was  to  be  experienced  in  railway  affairs. 
The  three  ex  officio  members  were  to  be  justices  of 
the  Superior  Courts  of  England,  Scotland,  and 
Wales.  They  were  to  act  as  presiding  officers,  each 
in  those  cases  only  which  were  heard  in  the  part  of 
the  Kingdom  for  which  he  was  nominated.' 

Against  this  Act  the  companies  protested  as  long 
as  protest  was  of  avail.  They  have  now  come  to 
accept  it  under  the  protest  that  it  puts  the  power 
to  make  rates  into  the  hands  of  men  not  capable  of 
judging  their  effect."  The  government,  they  say, 
has  departed  from  its  principle  of  interfering  with 
nothing  but  the  maximum  rates.  As  to  this  point 
two  of  the  Commissioners  differ.  Mr.  Justice  Wills 
thinks  that  the  Commission  has  no  power  to  fix  the 
rate,  but  only  to  order  the  company  to  desist  from 
charging  a  preferential  or  unreasonable  rate.  Sir 
Frederick    Peel    thinks    that    the    Commission    has 

'  The  Act  of  1888,  Patterson's  Statnles  and  Public  General  Statutes. 
^  Findlay,  229,  230. 


88     Railway  Control  by  Commissions 

power,  not  only  to  say  that  the  rate  is  preferential  or 
excessive,  but  to  fix  the  reduced  rate.'  Against  this 
interpretation  the  roads  protested  vigorously,  and 
when  protest  failed  resorted  to  strategy.  The  gov- 
ernment's privilege  of  fixing  maximum  rates  had 
been  of  no  importance.^  The  Committee  of  1882 
said  that  freight  rates  were  considerably  below  the 
maxima.  When  the  new  schedules  had  been  em- 
bodied in  a  Provisional  Order  Bill,  and  after  three 
years  of  close  discussion  became  a  law,  the  rates 
agreed  upon  were  declared  satisfactory.  But  the 
roads  promptly  ran  the  rates  up  to  the  maxima, 
and  the  work  of  the  new  schedule  was  in  vain.  Nor 
was  it  a  law  or  judicial  procedure  that  protected 
the  public  against  the  arbitrary  act.  A  change  of 
maxima  by  the  new  method  would  hardly  afford 
speedy  relief.  The  honorableness  of  such  action  on 
the  part  of  the  government,  if  not  its  consistency, 
might  be  questioned.^  One  phase  of  the  attempt 
would  be  sure,  namely,  the  expense.  The  govern- 
ment did  not  get  around  to  action.  As  a  conse- 
quence, publicity,  left  to  itself,  showed  its  power. 
Nor  were  the  representations  of  the  traders  and  the 
protest  of  Parliament  alone  suf^cient.  The  traders 
withheld  payment  of  their  accounts,  showing,  by 
the  fact  that  the  roads  promptly  returned  to  the 
rates  of  1892,  that  in  cases  of  injustice  there  is  not 
such  a  great  inequality  between  the  railways  and 

'  Saturday  Review,  vol.  Ixxx.,  537,  October,  1895. 
**  Findlay,  230.    Joint  Select  Committee  Report  on  Provisional  Or- 
der, 2  vols.,  1800  pages,  sat  from  April  4  to  July  14,  1891. 
''•  Mavor,  402. 


Railway  Regulation  in  England     89 

the  traders, — if  public  opinion  is  but  left  to  furnish 
the  esprit  de  corps. 

We  have  at  last  arrived  at  the  intensified  control, 
the  course  toward  which  we  proposed  to  trace.  Be- 
fore asking  ourselves  how  much  of  this  intensified 
control  is  worth  while,  let  us  see  how  others  call  its 
value  into  question.  A  recent  article  in  the  Satur- 
day Review  contains  the  following : 

"  The  Commission  sat  in  1889  on  fifteen  days,  in  1891 
on  twenty-eight  days,  in  1892  on  twenty-two  days,  or,  on 
an  average,  twenty-three  days  a  year.  According  to  their 
own  reports,  the  Commission  heard,  in  the  first  year  of 
their  existence  eleven  cases,  in  the  second  year  twenty- 
eight  cases,  in  the  third  nineteen  cases,  and  in  the  fourth 
year  seventeen  cases,  or,  on  an  average,  eighteen  cases  a 
year.  The  salary  of  the  Commissioners  is  ^^3000  a  year, 
or  more  than  ^2%  17  s.  an  hour.  Each  sitting  of  this 
Commission,  thinks  Sir  Albert  Rollit,  costs  the  public 
from  ;^40o  to  ;^8oo.  It  is  now  seriously  doubted  that  it 
is  worth  the  money."  ' 

It  is  obvious  that  this  argument  does  not  even 
touch  the  merits  of  the  Commission  system.  That 
the  objection  of  much  expense  and  no  work  is  a 
danger  peculiar  to  the  English  situation  is  made  evi- 
dent from  another  objection  that  is  often  heard. 
The  advocates  of  the  Act  of  1873  looked  forward  to 
an  energetic  and  experienced  Commission.  In  Eng- 
land, however,  when  a  good  salary  is  attached  to  an 
office,  the  appointee  is  very  likely  to  be  a  member 
of  one  of  the  old  families.      It  was  provided  in  1873 

^  Saturday  Review,  vol.  Ixxx.,  537,  October,  1895. 


go    Railway  Control  by  Commissions 

that  one  of  the  three  members  should  have  experi- 
ence in  railway  matters,  another  be  a  lawyer.  By 
the  Act  of  1888  the  legal  member  was  replaced  by  a 
justice  of  the  High  Court  of  England,  Scotland,  and 
Wales,  as  the  Commission  might  be  sitting  in  one 
or  the  other  of  these  places.  The  railway  man  of 
this  Commission  was  Mr.  Price,  a  manager  of  wide 
experience.  The  third  member  was  Sir  Frederick 
Peel,  long  a  member  of  the  old  Commission,  but  not 
a  man  of  practical  experience.  He  had  been  the 
third,  or  inexperienced,  member  of  the  old  Commis- 
sion and  the  new.  In  1891  Mr.  Price  died.  His 
place  was  filled  by  the  appointment  of  Lord  Cobham, 
a  man  whose  chief  recommendation  was  his  ancestry. 
The  Commission,  as  then  constituted  for  England, 
was  as  follows:  Chairman,  Mr.  Justice  Wills;  Sir 
Frederick  Peel,  and  Lord  Cobham  ;  no  one  of  whom 
has  the  least  practical  knowledge  of  railways,  far 
from  possessing  a  capacity  for  performing  one  of  the 
most  useful  functions  that  is  open  to  a  Commission, 
namely,  the  introduction  of  economies.  The  per- 
formance of  such  work  is  absent  from  the  record  of 
government  regulation  in  England. 

The  experience  of  England  reminds  us  upon  what 
regulation  in  an  Anglo-Saxon  democracy  should 
rest.  The  industry  should  be  allowed  to  develop 
untrammelled  by  government  interference.  The 
exception  to  this  is  the  reckless  granting  of  rights 
and  privileges.  Government  regulation  should  be 
limited  to  protecting  the  public  against  abuse  of 
privileges  and  immunities  granted  by  the  govern- 
ment.     Efforts  to  make  the  service  more  useful  to 


Railway  Regulation  in  England     91 

the  public  should  be  limited  to  recommendations 
and  demonstration  of  the  fact  that  the  interest  of 
quasi-public  servants  is  in  the  long  run  that  of  the 
public.  They  should  appeal  to  the  higher  senti- 
ments of  citizenship,  civic  pride,  honor,  love  achieve- 
ment and  patriotism.  These  sentiments  lie  deep  in 
the  Anglo-Saxon  breast.  They  should  not  be  dis- 
couraged, but  cherished.  The  public  should  praise 
them.  Their  deeds,  good  and  bad,  should  be  given 
to  the  community.  In  the  narrow  sense,  and  for 
the  moment,  publicity  may  seem  a  less  effective 
regulation  than  repression  and  government;  but  it 
is  upon  publicity  that  a  democracy  should  rest,  and, 
in  the  long  run,  and  under  intelligent  guidance,  in- 
dividual effort  will  bring  rewards  to  the  public  for 
its  confidence  and  guarantee  of  freedom  enormous 
by  comparison.  Such  in  a  democracy  is  the  power 
of  one  good  man.  Let  us  see  what  America  has 
lost  by  distrust  and  interference,  and  gained  by 
faith  in  the  ultimate  good  of  individual  initiative, 
and  public  honesty,  and  the  power  of  publicity. 


CHAPTER  VIII 

RAILWAY    REGULATION   IN   THE    UNITED    STATES 

IN  its  broad  essentials  the  experience  of  the  United 
States  has  had  very  much  in  common  with  that 
of  England.  The  course  of  government  regulation 
in  England  was  one  of  "  a  progressive  intensification 
of  control."  America  has  followed  in  this  course, 
but,  in  most  stages,  several  years  behind.  It  is  in 
this  position  that  she  finds  herself  to-day.  England 
has  settled  most  of  the  questions  Avhich  in  the 
United  States  are  still  vexing  the  public.  In  Eng- 
land the  roads  are  compacted  into  a  solid  system, 
with  associate  management,  and  perfect  accordance 
as  to  great  policies.  There  are  now  only  about 
ninety-three  roads  in  England  and  Scotland.*  We 
need  not  consider  the  concentration  of  railway  con- 
trol in  France  under  six  great  companies.  The  case 
of  England  more  nearly  approaches  American  con- 
ditions, and  the  comparison  is  more  useful.  In 
America,  then,  although  the  process  of  amalgama- 
tion and  combination  has  been  a  marked  feature  of 
the  recent  railway  situation,  the  150,000  miles  of 
railway  is  now  operated  by  nearly  625  corporations, 
and  owned  by  nearly  1500  companies.  In  England 
competition  and  discrimination  are  a  thing  of  the 

'  Findlay,  213,  214. 
92 


Regulation  in  the  United  States       93 

past.  At  the  present  time  there  is  practically  no 
part  of  the  United  States  in  which  competition 
does  not  exist  between  organically  independent 
carriers,  and  although  there  has  been,  since  shortly 
after  1870,  a  system  of  State  Railway  Commissions, 
supplemented  since  1887  by  the  Interstate  Com- 
merce Commission,  discrimination  is  a  common 
complaint.'  Thus  the  United  States,  with  a  formid- 
able set  of  Commissions,  and  an  equally  formidable 
code  of  railway  law,  has  failed  to  work  out  those 
problems  of  regulation  and  management  which  in 
England  the  railways  worked  out  between  1854  and 
1873,  and  when  left  almost  entirely  to  themselves.'' 
The  reasons  for  this  difference  will  throw  light 
upon  the  questions  which  it  is  the  task  of  this  paper 
to  answer,  namely:  (i)  "  Should  there  be  a  system 
of  Railway  Commissions  in  the  United  States  ?  and 
if  so,  (2)  What  should  be  its  powers  ?  "  The  reasons 
are :  first,  that  no  restraint  was  placed  upon  the 
building  of  railways;  second,  when  the  need  of 
preventive  regulation  was  felt,  the  government  re- 
sorted not  to  preventive,  but  to  corrective  legisla- 
tion ;  and,  third,  that  this  legislation  was  of  such 
a  nature  as  prevented  the  roads  from  carrying  it 
out,  and  made  it  impossible  for  them  to  work  out 
the  railway  problems  unaided,  as  the  English  roads 
had  done.      Many  writers  on  the  railway  question 

'  Aldace  F.  Walker,  Railway  Associations,  i. 

^  James  M.  Bonham,  Railway  Secrecy  and  Trusts,  "Questions  of 
the  Day,"  1890,  127;  Hudson,  Railways  and  the  Republic  ;  George 
n.  Lewis,  National  Consolidation  of  the  Railways  of  the  United 
Stales. 


94    Railway  Control  by  Commissions 

do  not  accept  these  reasons,  nor  do  they  accept  the 
conclusions  drawn  from  them.  These  writers  have 
popular  opinion  on  their  side.  The  reasoning  will 
be  put  forward  for  what  it  is  worth. 

It  would  have  been  well  if,  at  the  beginning  of 
railway  construction  in  the  United  States,  there 
could  have  been  some  superior  intellect  to  plan  an 
ideal  network.  In  Europe,  the  problem  did,  in 
fact,  present  itself  almost  at  the  outset,  and  could 
be  dealt  with  by  one  compact,  highly  centralized 
government.  But  in  the  United  States  it  was  the 
affair  of  from  twenty-five  to  forty-five  lusty  common- 
wealths. At  the  beginning  there  was  no  problem. 
The  railways  made  problems,  by  opening  up  new 
country,  creating  new  traffic  for  competition,  and 
weaving  out  a  system  of  interstate  communication, 
which  was  one  of  the  great  blessings  which  the  rail- 
ways conferred  upon  the  nation  The  railroad  question 
had  developed  with  the  country.  It  has  been  made 
difficult  by  all  the  complications  that  territorial  ex- 
pansion, rapid  changes  of  economic  and  political 
conditions,  and  federation  in  government  can  bring 
to  a  public  question.  When  we  remember  these 
difficulties,  and  are  mindful  of  the  great  good  that 
has  come  from  individual  enterprise  in  railway  con- 
struction, we  can  be  grateful  to  the  last  generation 
of  legislators,  not  only  for  not  restraining  the  rail- 
ways but  for  encouraging  them.  Their  control  has 
proved  on  the  whole  not  inadequate,  and,  as  com- 
pared with  some  recent  attempts,  ample. 

The  history  of  this  control  divides  itself  into  four 
periods.     The  first  came  to  a  close  about  1830;  the 


Regulation  in  the  United  States      95 

second  was  from  1830  to  1850;  the  third  from  1850 
to  1870 ;  the  fourth  has  not  yet  ended.  The  first 
period  was  marked  by  an  appreciation  of  the  need 
of  public  highways  and  an  abundance  of  projects  for 
internal  improvements.'  By  183 1  the  locomotive 
stood  forth,  of  all  means  of  communication,  as  the 
one  that  had  come  to  stay.  The  second  period  was 
characterized  by  the  activity  of  the  several  States 
in  internal  improvements.  According  to  a  strict 
construction  of  the  Constitution,  the  Federal  Gov- 
ernment did  not  possess  power  to  engage  in  internal 
improvements.  The  development  of  both  railways 
and  canals  was,  during  this  period,  the  work  of  the 
States.  The  third  period  was  that  in  which  internal 
improvements  were  left  to  private  enterprise.  By 
1850  reliance  upon  canals  had  been  abandoned. 
The  most  important  instrument  of  national  expan- 
sion and  consolidation  was  the  railways.  To  them 
was  applied  the  theory  that  the  public  might  safely 
rely  upon  competition  to  guarantee  fair  treatment 
and  fair  prices.  The  great  fear  was  that  there 
should  not  be  a  sufficient  number  of  roads  con- 
structed.'^ During  this  period  were  scattered  the 
seeds  of  the  railway  problem.  The  fourth  period 
has' been  stamped,  it  seems,  indelibly,  with  the  im- 
press of  this  problem  and  attempts  of  the  govern- 
ment to  solve  it  by  government  control.  It  is  the 
wisdom  of  some  of  these  attempts,  the  causes  of  the 
failure  of  others,  and  the  value  of  different  methods 
that    we    wish    to    consider.       We    may    begin    by 

'  Henry  Adams,  Introduction  to  Dixon's  State  Conliol. 
^  Louis  Paul-Uubois,  Lcs  Chemcins  de  Fcr  atix  Etats  Unis. 


9^    Railway  Control  by  Commissions 

substantiating  the  first  reason  for  the  existence  of 
many  railway  questions  yet  unsolved. 

What  Prince  Metternich  once  said  to  George 
Ticknor  on  the  subject  of  repudiation  by  the  States, 
in  reproach,  of  course,  of  our  democratic  institu- 
tions, well  expresses  the  nature  of  railway  develop- 
ment before  1870:  "  You  must  first  suffer  from  an 
evil  before  you  can  apply  the  remedy.  You  have 
no  preventive  legislation."  '  In  the  matter  in  ques- 
tion he  was  surely  correct.  In  all  Western  Europe, 
even  in  countries  where  the  government  did  not  as- 
sume the  direction  of  the  roads,  restraint  arose  out 
of  the  very  needs  of  the  government.  This  is  seen 
in  the  enactment  of  general  railway  laws.  It  was 
Austria,  the  most  conservative  country  in  Western 
Europe,  that,  in  1838,  enacted  the  first  law  for  re- 
straint and  uniformity  in  railway  building.'^  It 
provides  (i)  for  a  detailed  form  of  application  for 
charter,  (2)  for  limitations  to  charters,  (3)  for  a 
monopoly  of  territory  during  the  period  of  charter, 
(4)  for  publicity  in  rates,  and  (5)  for  their  reduction 
when  profits  should  exceed  fifteen  per  cent.^  Next 
in  order  came  Prussia,  a  few  months  later,  with  a 
law  of  somewhat  similar  provisions.  The  first  that 
England  had  resembling  a  general  railway  law  was 
the  charter  proviso  of  1845.  That  looked  forward 
to  restraint,  but  did  not  provide  any.  Yet  in  Eng- 
land restraint  already  existed — in  the  cost  and  dififi- 
culty  in  getting  a  charter,  the  necessity  of  purchasing 

'  Life,  Letters,  and  yournal  of  George  Ticknor,  edited  by  George 
S.  Hilliard,  vol.  ii.,  175.  ^  Hadley,  209. 

*  Sterne,  29  ;  Jeans,  79. 


Regulation  in  the  United  States      97 

land  at  arbitrary  prices,  the  fear  of  accidents,  and 
the  distrust  of  the  public'  In  America,  on  the 
other  hand,  far  from  any  conservatism  being  felt, 
the  policy  of  the  government  was  to  encourage  con- 
struction to  the  uttermost.  Up  to  1848  no  general 
railway  legislation  was  even  thought  of.  In  that 
year  the  first  general  railroad  law  in  the  United 
States  was  made  by  Michigan.  Illinois  followed  in 
1849,  Ohio  in  1854."  The  laws  made  by  the  States 
at  this  time  did  not  provide  restraint.  The  object 
was  to  free  the  State  from  all  connection  with  rail- 
way enterprise  that  should  involve  responsibility. 
To  this  end  some  States  went  so  far  as  to  revise 
their  constitutions,  incorporating  in  them  a  clause 
inhibiting  the  State  from  all  future  connection  with 
railroad  building  or  other  schemes  of  internal  im- 
provement.' This  step  gave  individual  initiative 
more  freedom.  The  enactment  of  general  railway 
laws  only  increased  it.  While  the  States  were  en- 
gaged in  internal  improvements  and  put  their 
money  into  railways,  they  granted  charters  by 
special  enactments.  Now  no  legislative  check 
whatever  was  placed  upon  granting  of  charters.  A 
number  of  States  went  so  far  as  to  provide  in  their 
constitutions  against  the  combination  of  competing 
lines.  In  the  West,  as  we  should  expect,  the  legis- 
latures granted  concessions  with  a  free  hand,  and, 
with  the  Dartmouth  College  case  staring  them  in 

'  On  the  fear  of  accidents  see  Francis,  History  of  English  Rail- 
ways, 2  vols.     Quoted  in  Clark,  Am.  Ec.  Ass'n,  vol.  vi.,  495. 
*  Clark,  12,  quoting  Cooley  ;    Ibid.,  14. 
^  Lalor's  Encyc,  article  "  Repudiation  ";  Clark  14  and  21. 
7 


98     Railway  Control  by  Commissions 

the  face,  many  rights  which  they  have  since  been 
desirous  of  restricting.  Even  conservative  Massa- 
chusetts, and  so  late  as  1868,  granted  a  charter 
authorizing  the  construction  of  a  line  parallel  to  a 
part  of  the  Boston  and  Maine  at  an  average  distance 
of  one  mile  from  it,  and  in  1869  charters  were 
granted  for  three  roads  from  Taunton  to  Provi- 
dence.' It  was  the  agriculturists  of  the  Northwest 
who  first  sounded  the  alarm,  but  only  when  the 
roads  had  it  in  their  power,  and  were  forced  by 
necessity  of  self-preservation,  to  make  and  unmake 
cities,  to  destroy  or  build  up  the  industry  of  in- 
dividuals, and  to  force  migrations  of  industry  to 
the  favored  points.  The  railroads  had  done  their 
work;  the  States  could  complain  only  of  the  disease 
they  had  themselves  contracted.''  This  I  have  sub- 
stantiated as  the  first  reason  for  the  existence  of 
unsolved  railway  questions.  The  second  was  that 
the  States  did  not  understand  the  symptoms  of  the 
disease  under  which  they  were  struggling.  The 
legislation  and  restraints  they  applied  were  not  cura- 
tive, but  punitive.  Their  effect  has  been  to  aggra- 
vate the  evil.  This  I  shall  proceed  to  substantiate. 
The  evil  in  1870  was  that  there  were  too  many 
roads.  All  of  these  roads  would  run  so  long  as  they 
could  pay  expenses.  In  order  by  hook  or  crook  to 
get  traffic  enough  to  do  this  they  would  make  ab- 
surdly low  rates  at  points  where  they  must  meet 

1  Clark,  17. 

'  Dixon,  Slate  Railway  Control,  24,  42  ;  G.  H.  Lewis,  National 
Consolidation,  194  ;  Paul-Dubois,  Les  Chemins  de  Fer  aux  Etats 
Unis,  154-197. 


Regulation  in  the  United  States       99 

competition.  To  recover  what  was  thus  sacrificed 
they  would  make  outrageously  high  rates  at  non- 
competing  points.  This  was  a  simple  measure  of 
self-preservation.  The  conditions  of  railway  con- 
struction made  it  necessary.  The  introduction  of 
steel  rails  at  this  time  made  ineffective  the  compe- 
tition which  had  heretofore  been  relied  upon  to 
regulate  rates  of  charge.  Discriminating  rates  were 
thus  necessary  and  possible,  and  no  enactment  of 
Congress  or  the  States  could  prevent  the  higher  law 
of  self-preservation  from  asserting  itself  in  spite  of 
all  the  machinery  that  could  be  devised.  The  evil 
was  discrimination.  This  was  made  necessary  by 
unjustifiable  competition.  The  roads  would  have 
been  able  to  stop  this.  It  was  to  their  interest 
to  do  so.  The  roads  did  it  in  England  unaided. 
In  America  they  would  have  done  so,  if,  first,  pub- 
lic opinion  had  suggested  it  and  the  government 
had  not  made  it  impossible  by  an  unwise  and  un- 
justifiable freedom  in  granting  concessions  to  useless 
competing  lines.'  Events  have  proved,  and  there 
are  now  many  examples  to  illustrate,  not  only  that 
this  can  be  done  by  agreements  between  the  roads, 
but  that  such  agreements  remove  only  the  evils  of 
competition  and  leave  its  advantages  intact.''  Even 
under  the  conditions  of  1870,  what  this  country 
needed  was  not  lower  rates.     The  introduction  of 

'  Clark,  21.  E.  W.  Meddaugh,  "  The  Interstate  Commerce  Act, 
its  Purposes,  Partial  Failure,  and  Reasons,  with  Suggestions  for  Im- 
proving It."  Publications  Michigan  Pol.  Science  Ass" n.  May,  1893  ; 
Hadley,  Q.  J.  E.,  iii.,  175,  January,  1889. 

^  E.  g.,  the  ideal  competition  between  the  London  and  North- 
western and  the  ^lidland. 


loo    Railway  Control  by  Commissions 

steel  rails  had  already  sent  rates  down.  It  is  to  the 
interest  of  railway  owners  to  keep  rates  low.  What 
we  needed  was  steady  rates.'  It  was  to  the  interest 
of  the  three  parties  interested  in  railway  transporta- 
tion that  the  rates  should  be  steady,  namely,  the 
investors,  the  shippers,  and  the  railways.  The  rail- 
ways could  have  introduced  the  element  of  steadi- 
ness. The  importance  of  the  shippers'  interests  and 
the  advantage  of  low  rates  were  so  exaggerated 
that  they  were  made  neither  steady  nor  low,  to 
the  disadvantage  not  only  of  the  investors,  but  of 
the  railways  themselves.  How  this  was  done  will 
now  be  shown. 

Between  1867  and  1870  an  agitation  which  is 
known  as  the  Granger  movement  arose  in  the  West 
as  a  result  of  the  state  of  things  above  described. 
The  farmer  vote  in  the  elections  was  pitted  against 
the  corporate  vote.  The  former  was  triumphant 
because  it  received  the  support  of  those  towns  which 
were  non-competing  points  and  had  suffered  from 
discrimination  and  extortion.  In  Illinois  the  move- 
ment was  very  strong.  Two  successive  Legislatures 
were  returned,  thoroughly  opposed  to  monopoly 
and  corporate  power.  _A  new  State  constitution 
was  adopted  in   1870,  making   it   mandatory  upon 

'  Seligman  in  Pol.  Science  Quarterly,  September,  1887,  p.  389 : 
"  Pooling  maintains  the  advantages  of  a  healthy  competition  and 
prevents  cut-throat  competition."  Hadley,  106  :  "  To  the  business 
community,  regularity  and  steadiness  of  rates  are  more  important 
than  mere  average  cheapness.  Business  can  adjust  itself  to  high 
rates  easier  than  to  fluctuating  ones  ;  the  railroad  competition  of 
necessity  makes  them  fluctuate."  Quoted  by  Blanchard  (G.  R.), 
Forutii,  v.,  658,  August,  1888 — "Shall  Fooling  be  Permitted?" 


Regulation  in  the  United  States     loi 

the  General  Assembly  to  enact  certain  laws  for  the 
control  of  railroads.  This,  it  will  be  observed,  was 
the  expedient  of  democratic  tyranny  to  subvert  a 
fundamental  principle  of  American  liberty,  namely, 
that  no  legislative  body  can  bind  its  successor.  In 
Illinois  they  even  went  so  far  as  to  make  it  the  duty 
of  the  Legislature  to  fix  schedules  of  maximum  rates, 
Iowa  in  1874,  Nebraska  and  Alabama  in  1875,  and 
CaliTornia  in  1879  drew  up  new  constitutions  con- 
taining somewhat  similar  provisions,  and  Commis- 
sions were  created  by  statute  to  see  that  the  laws 
were  enforced.  Illinois  was,  of  the  Western  States, 
the  leader  in  the  commission  movement,  as  it  was  in 
the  movement  for  constitutional  revision,'  In  ac- 
cordance with  the  constitutional  mandate  the  Gen- 
eral Assembly,  in  April,  1871,  passed  an  act  creating 
the  Railroad  and  Warehouse  Commission,  composed 
of  three  members  to  be  appointed  by  the  Governor 
for  the  term  of  two  years."  It  was  given  power 
to  investigate  and  to  prosecute  violations  of  the 
statute.  The  Legislature  had  thus  taken  a  bold 
stand,  but  that  it  did  not  comprehend  the  causal 
conditions  is  shown  by  what  followed.  In  1873  the 
fruits  of  unrestrained  investment  were  gathered  in  a 
great  national  panic.  Then  it  was  that  Illinois 
struck  deeper  into  the  heart  of  things.  But  the 
mistake  had  been  made  in  supposing  that  the  ship- 
pers were  the  only  persons  interested  in  the  roads. 
Nor  was  the  State  yet  convinced  of  her  mistake. 
Instead  of  allowing  the  crippled  roads  to  gather  their 
resources,  she   passed    in    1873    a   law  empowering 

'  Clark,  Stale  Railroad  Commissions,  20.  "^  Clark,  32,  33. 


I02    Railway  Control  by  Commissions 

the  Commission  to  make  schedules  of  reasonable 
maximum  rates  for  each  road  doing  business  in  the 
State.'  What  was  needed  at  that  time  was  schedules 
of  maximum  rates  with  adequate  provision  for  their 
enforcement.  The  proper  step,  it  was  left  for  the 
self-interest  of  the  roads  to  find,  with  what  success 
we  shall  consider,  under  the  next  reason,  when  we 
come  to  the  topic  of  railway  associations.  In  the 
meantime  the  power  of  the  Commission  was 
strengthened  so  as  to  enforce  its  schedule  of  max- 
ima.'' A  State  prosecutor  was  put  at  the  service  of 
the  Commission ;  the  findings  of  the  Commission 
were  at  once  made  prima  facie  evidence,  and  the 
burden  of  proof  that  a  rate  was  reasonable  was 
placed  upon  the  roads.  The  action  of  Illinois  was 
quickly  followed  by  many  other  States  in  the  South 
and  West  until  the  Commission  "  with  power  " 
became  a  characteristic  feature  of  Western  railway 
control.  To  understand  what  the  value  of  its 
work  was  we  must  inquire  both  what  it  was  doing 
and  what  other  forces  were  doing  at  the  same  time. 
Let  us  first  consider  what  the  railways  did  for 
themselves. 

The  questions  that  remained  to  be  settled  in  1870 
were  those  of  discrimination  or  competition,  through 
rates,  and  co-operation  between  different  lines.  The 
companies  resorted  for  the  settlement  of  these  ques- 
tions to  voluntary  associations  of  railway  managers. 
Their  work  divided  itself  into  two  parts;  first,  the 
care  of  joint  traffic;  second,  the  regulation  of  com- 
petitive traffic.     The  first  was  similar  to  that  done 

'Walker,  17.  '  Clark,  34,  35, 


Regulation  in  the  United  States     103 

by  the  Railway  Clearing- House  in  England.  The 
principal  subjects  of  negotiation  were  joint  rates, 
classification  of  freight,  apportionment  of  earnings, 
and  inspection.  The  second  part  of  the  work  was 
that  done  by  the  monthly  rate  conferences  of  the 
English  managers.'  Its  purpose  was  to  maintain 
rates,  to  assist  in  maintaining  lines  already  con- 
structed in  competitive  existence.  It  was  pooling,  or, 
as  Senator  Piatt  defined  it,  "an  agreement  between 
competing  lines  to  apportion  the  competitive  busi- 
ness; that  and  nothing  more."  "  In  1890  the  leading 
associations  of  this  sort  were  the  following:  The 
Trunk  Line  Association,  embracing  the  great  rail- 
roads which  operate  between  the  Atlantic  seaboard 
and  the  cities  of  Buffalo,  Pittsburgh,  and  Wheeling; 
the  Central  Traffic  Association,  including  most  of 
the  roads  in  the  territory  west  of  the  Trunk  Lines  as 
far  as  Chicago  and  St.  Louis;  the  Interstate  Com- 
merce Railway  Association,  with  its  affiliated  organi- 
zations, called  the  Western  Freight  Association,  the 
Western  States  Passenger  Association,  and  the 
Trans-Missouri  Freight  and  Passenger  Association, 
covering  the  region  between  Chicago  and  St.  Louis 
on  the  one  hand  and  the  Rocky  Mountains  on  the 
other;  the  Southern  Interstate  Association,  working 
in  the  Southwest  beyond  the  Mississippi ;  the  Trans- 
Continental  Association,  embracing  traffic  to  and 
from  the  Pacific  coast;  and  in  addition  to  a  number 
of  associations  covering  smaller  sections  of  the 
country,    the  Southern   Passenger  Association   and 

'  Walker,  Railway  Associations,  i2-ig. 

^Quoted  by  Blanchard,  Forzim,  v.,  655,  August,  1888. 


104    Railway  Control  by  Commissions 

the  Southern  Railway  and  Steamship  Association, 
having  their  field  in  the  Southern  States  east  of  the 
Mississippi  River,'  The  above  list,  it  is  seen, 
covered  very  nearly  the  whole  country.  The  ab- 
sence from  the  list  of  special  associations  for  New 
England  may  be  explained  when  we  consider  the 
work  of  a  second  non-restricting  force  for  good, 
namely,  the  Massachusetts  Commission.  For  the 
present  we  may  consider,  as  typical  of  the  railway 
association  and  as  illustrating  by  its  experience  in  a 
sparsely  settled  country  the  history  and  efficiency  of 
all  the  associations,  the  last  of  the  list,  namely,  the 
Southern  Railway  and  Steamship  Association. 
Upon  this  excellent  type  we  are  fortunate  in  having 
an  excellent  monograph. ° 

After  a  series  of  preliminary  meetings,  beginning 
in  1873,  the  final  agreement  constituting  the 
Southern  Railway  and  Steamship  Association  was 
perfected  in  1875  '■>  <^^^  ^^  October  13th  of  that  year 
Mr.  Albert  Fink,  General  Superintendent  of  the 
Louisville  and  Nashville  road,  was  elected  General 
Commissioner.  The  Commissioner  had  general 
charge  of  the  business  of  the  Association.  Import- 
ant matters  were  referred  to  a  convention  or  to 
managers  of  the  roads  interested.  The  decisions 
and  orders  of  the  General  Commissioner,  recom- 
mendations, statistics,  together  with  the  minutes  of 
the  conventions  and  committee  meetings,  were 
communicated   to  the  various  roads  by  means  of 

'  Walker,  6. 

'^  "  The  Southern  Railway  and  Steamship  Association,"  Henry 
Hudson,  Q.  J.  E.,  vol.  x.,  115,  October,  1S90. 


Regulation  in  the  United  States     105 

circular  letter.  In  1883  an  Executive  Committee 
was  appointed,  consisting  of  the  manager,  or  execu- 
tive officer,  of  each  of  the  principal  lines  of  the  As- 
sociation. The  Executive  Committee  was  given 
jurisdiction  over  all  matters  relating  to  the  joint 
trafific,  but  could  act  only  by  unanimous  consent. 
Of  its  sub-committees  the  most  important  was  the 
Rate  Committee,  having  charge,  in  the  first  instance 
at  least,  of  rates  and  classifications.  The  Rate 
Committee  could  only  act  by  unanimous  consent, 
and  any  member  could  demand  that  a  question  be 
referred  to  the  Executive  Committee.  By  the  first 
agreement,  the  Commissioner  was  to  serve  as  arbi- 
trator, but  some  years  later  an  Arbitrator  was  elected 
as  a  permanent  officer  of  the  Association.  His 
duty  was  to  receive  written  arguments  and  to  decide 
all  cases  referred  to  him.  In  1883  the  number  of 
Arbitrators  was  increased  to  three,  the  present 
number.' 

At  the  outset  the  pool  covered  only  business  with 
the  Eastern  cities.  In  1886  it  was  extended  to 
business  with  the  West,  which  had  been  suffering 
from  rate  wars,  much  to  the  dissatisfaction  of  the 
public.  In  the  first  few  years  it  was  hard  to  collect 
balances.  In  June,  1877,  a  convention  of  the  roads 
agreed  to  a  deposit  of  twenty  per  ce,nt.  In  his 
annual  report  for  1887  the  Commissioner  was  able 
to  say  that  since  1877  all  balances  had  been  paid 
and  rates  thoroughly  maintained,  except  for  about 
a  month,  from  February  14  to  March  15,  1878, 
during  which  time  there  was  a  war  of  rates  between 

'Henry  Hudson,  71-4. 


io6    Railway  Control  by  Commissions 

the  roads.  Nor  was  the  service  of  the  roads  to  the 
public  less  valuable  than  that  to  the  railways  and 
the  investors,'  In  1887  the  General  Commissioner 
reported  to  the  convention  that  there  had  been 
literally  no  complaint  of  discrimination  between  in- 
dividuals in  the  same  locality,  and  very  little  be- 
tween localities,  and  that,  moreover,  unreasonable. 
Not  only  did  the  roads  prevent  rate  wars  and  avoid 
discrimination,  they  also  developed  the  traffic  of  the 
country."  Roads  which  had  a  genuine  utility,  but 
not  strength  enough  to  survive  a  crisis,  were  pre- 
served to  carry  on  their  work  in  peace.  The  de- 
velopment of  traffic  has  raised  these  weaker  roads 
to  a  higher  utility,  and  has,  thus,  justified  their 
preservation.  It  has  increased  enormously.  The 
amount  of  cotton  carried  North  from  all  pooled 
points  more  than  doubled  from  1877-78  to  1885-86. 
In  1877  it  was  297,284  bales;  in  1885-86  it  was 
664,337.  The  amount  of  merchandise  South- 
bound increased  in  the  same  period  from  70,000,000 
pounds  to  nearly  150,000,000  pounds.^  Although 
such  an  increase  was  certainly  due  in  part  to  other 
causes,  it  was  just  as  certainly  due  to  the  regularity 
of  rates  and  the  co-operation  of  the  roads.  Cer- 
tainly, that  part  of  the  public  which  had  to  do 
directly  with  the  roads  in  the  Association  was  not 
dissatisfied  with  the  working  of  the  pool.  Yet  in 
the  year  1887  the  Federal  Government,  having  at 
last  determined  upon  railway  legislation,  seized 
upon  pooling  as  the  very  thing  that  it  wished  to 
put  a  stop  to.     That  in  so  doing  it  was  moved  more 

'  Henry  Hudson,  75.  '^  Ibid.,  93,  94.  '^  Ibid.,  93. 


Regulation  in  the  United  States     107 

by  politics  than  by  wise  policy  will  presently  be 
once  more  demonstrated.  For  the  present,  let  us 
consider  very  briefly  the  second  force  that  was  sup- 
plementing the  work  of  the  "  commission  with 
power,"  namely,  the  "  advisory  commission." 

We  saw  that  the  Western  States  found  themselves 
in  1873  opposed  in  interest  and  policy  to  the  rail- 
ways. At  that  time  business  was  poor  and  traffic 
ceased  to  be  remunerative.  Stockholders  were  dis- 
satisfied and  shippers  were  in  distress.'  It  was  at 
this  time  that  the  Western  States  spoke  with  vigor 
and  in  no  gentle  spirit.  We  can  readily  understand 
failure  before  1873  to  check  the  building  of  useless 
roads  by  the  censorship  of  a  board  of  commissioners, 
but,  at  the  same  time,  we  should  expect  some  such 
action  shortly  after  1873.  We  are  surprised  to  find, 
at  a  time  when  securities  were  being  thrown  in  great 
numbers  upon  the  market,  such  legislation  as  the 
extension  of  power  given  in  1873  to  the  Illinois 
Commission  and  such  legislation  as  Wisconsin's 
Potter  Law.'  The  railways  at  that  time  could  not 
stand  interference,  and  the  public  might  well  have 
foreseen  that  they  would  resort  secretly  to  what 
they  were  forbidden  to  do  openly.  "  The  evidence 
is  strong  that  railways  have  not  been,  at  least  in 
England  and  the  United  States,  on  the  whole  ex- 
ceptionally profitable."  '  They  could  certainly  not 
run  at  a  great  profit  during  the  latter  part  of  1873 
and  the  early  part  of  1874.     A  community  whose 

'  Clark,  19.  "^  Haclley,  134-6. 

* "  A  Contribution  to  the  Theory  of  Railway  Rates,"  F.  W.  Taussig, 
Q.  y.  E.   v.,  441,  July,  1891. 


io8    Railway  Control  by  Commissions 

interests  were  so  bound  up  with  the  development 
of  the  railway  system  as  were  those  of  the  West 
should  have  shown  a  greater  appreciation  of  the 
true  situation  and  the  proper  remedy.  There  was 
even  serious  doubt  as  to  the  constitutionality  of  the 
action  of  these  States,  The  Illinois  Law  of  1871 
providing  for  State  control  of  rates  was  promptly 
declared  unconstitutional  by  Judge  Lawrence.  He 
was  as  promptly  rewarded  by  failure  of  re-election, 
and  the  State  avoided  the  point  of  his  decision  by 
providing  in  the  Law  of  1873,  not  that  there  should 
be  certain  maxima,  but  that  the  rates  should  be 
reasonable.  A  Commission  was  then  appointed  to 
fix  reasonable  rates.  The  Commission  was  given 
such  arbitrary  power  that  they  succeeded  in  forcing 
upon  the  roads  rates  that  were  quite  unremunera- 
tive.*  The  railroads  made  vain  attempts  to  test 
these  regulations  in  the  courts.  Appeal  after  appeal 
was  taken,  until  finally,  in  1877,  the  constitutional- 
ity of  such  a  law  was  put  beyond  doubt.  In  that 
year  the  Supreme  Court,  in  the  famous  decision  in 
Munn  vs.  Illinois,  sustained  their  constitutionality 
and  started  the  trend  of  judicial  opinion  in  that 
direction.  But  the  experience  of  getting  this 
decision  was  very  tedious  and  costly.  Western 
States  began  to  ask  themselves  whether  it  was 
worth  much  after  all.     They  began  to  look   with 

'  For  a  discussion  of  the  Constitutional  Question  of  the  Granger 
Cases  see  "  State  Regulation  of  Prices,"  Wm.  H.  Dunbar,  Q.  J-E., 
vol.  ix.,  309  ff.,  April,  1895  ;  Munn  vs.  Illinois,  94  U.  S.,  113  ; 
Hadley,  42,  130-6.  For  the  Theory  and  Policy,  see  T.  M.  Cooley, 
"  The  Theory  of  Transportation,"  Ftil>.  Am.  Ec.  Ass'n,  ix.,  146 
147,  May,  1894. 


Regulation  in  the  United  States     109 

more  attention  on  what  was  going  on  in  the  East. 
They  found  much  to  learn  from  the  experience  of 
Massachi-setts. 

That  experience  was,  briefly,  this:  In  1869  the 
railroads  of  Massachusetts  were  in  the  same  dis- 
connected state  as  those  of  many  other  places.  The 
service  had  not  been  planned  with  a  view  to  the 
needs  of  the  Commonwealth,  and  nothing  was 
known  of  the  internal  workings  of  the  roads. 
Whatever  reports  had  been  made  were  intentionally 
worthless.  The  public  wished  to  understand  the 
railway  system,  that  it  might  see  that  its  future  in- 
terests were  not  prejudiced.  In  1869,  therefore,  a 
Commission,  composed  of  estimable  public  men, 
was  appointed  to  investigate  and  report.  Its  only 
duty  was  to  keep  the  public  informed  and  to  make 
recommendations  both  to  the  roads  and  the  Legfis- 
lature.  Powers  it  had  none,  except  the  force  of 
argument ;  more  than  this  it  repeatedly  refused  to 
accept.  The  great  pool  of  1877  had  been  weighed 
by  the  Commissioners  and  met  their  approval. '  They 
explained  its  advantages  to  the  public.  Its  stand  on 
discrimination  was  moderate,  leaving  something  to 
the  discretion  of  the  roads.*  In  questions  which  it 
was  called  upon  to  arbitrate  it  put  the  railroads  and 
the  public  on  as  nearly  an  equal  footing  as  possible, 
and  avoided  special  animus  against  the  railways. 
It  early  convinced  the  roads  that  upon  the  whole 
their  interests  coincided  with  those  of  the  public. 

^Reports,  1878,  66;  iSSi,  36,  37;*  decision  in  Clapp  Hanover 
Bridge  Co.,  1881,  42,  214;  Adams,  219;  Freetown  vs.  New  Bed- 
ford, 1871,  115. 


no    Railway  Control  by  Commissions 

The  result  was  that  it  was  eminently  successful  in 
the  introduction  of  economics  and  the  police  regu- 
lation of  the  roads."  When  the  Commission  had 
made  sure  of  its  work  in  guiding  that  part  of  the 
railway  system  which  could  properly  be  regulated 
without  Federal  co-operation,  it  began  to  extend  its 
sphere  of  influence.  It  was  through  this  attitude 
of  the  Commission  that  the  attention  of  Illinois  and 
other  Western  States  was  called  to  it  when  the  con- 
stitutionality of  State  control  of  rates  was  being  de- 
bated. The  Massachusetts  Commission  had  never 
exercised  the  function  of  establishing  rates.  It  had 
early  guided  the  construction  of  roads,  so  that  ex- 
travagant competition  should  not  exist.  It  had 
countenanced  combinations  between  the  roads,  and 
was  content  to  limit  its  power  in  the  matter  of  rates 
to  that  of  impartial  arbitrator.  And  no  Commission 
had  been  more  successful  in  securing  rates  at  the 
same  time  low  and  steady.^  Even  if  the  decrease  in 
the  rates  had  been  less  pronounced,  this  would  be 
more  than  compensated  for  by  the  confidence  which 
the  roads  gave  the  Commissioners  in  view  of  their 
policy  of  non-interference.  It  added  to  the  per- 
manent value  of  their  functions  of  regulation  and 
arbitration.  Even  while  awaiting  the  determina- 
tion of  its  authority  by  the  Supreme  Court,  the 
Illinois  Commission  in  1877  put  the  Massachusetts 
principle  of  arbitration  into  practice.'     When  power 

'  W.  A.  Crafts,  "  The  Massachusetts  Railroad  Commission,"  En- 
gineering Magazine,  292,  November,  1895.  Crafts  was  for  years 
Secretary  of  the  Commission. 

">■  For  table  of  rates,  1871  to  1895,  see  Rep.,  1895.       ^  Clark,  37. 


Regulation  in  the  United  States     1 1 1 

was  confided  to  it  to  fix  rates,  it  voluntarily  adopted 
the  Massachusetts  principle  of  arbitration  as  more 
efficacious.  And  so  it  proved  to  be.  For  the  year 
ending  June  30,  1880,  there  were  forty-seven  formal 
complaints  brought  before  the  Illinois  Commission, 
of  which  twenty-five  were  of  extortion,  thirteen  of 
unjust  discrimination,  six  of  both,  and  three  for 
other  reasons.'  All  of  these  were  settled  by  the 
Commission.^  Where  the  railroads  were  decided 
against  they  promptly  responded  to  the  decision  of 
the  Commission.  The  West  assumed  a  new  attitude 
toward  the  roads.  In  Kansas,  the  Commission  be- 
gan to  make  use  of  its  discretionary  power  to  place 
a  very  liberal  interpretation  on  some  rather  stringent 
laws.^  In  1884  the  number  of  cases  in  Illinois  had 
been  reduced  to  three,  each  of  which  concerned  the 
question  of  unjust  discrimination.*  In  1885  there  is 
no  record  either  of  extortion  or  unjust  discrimina- 
tion.* But  the  peace  was  short.  The  bulk  of  the 
trafific  was  interstate.  The  railways  argued  the 
~^a;te  had  no  constitutional  authority  to  regulate 
fares  or  rates  on  commerce  among  the  States.^ 
Their  argument  was  confirmed  in  a  case  decided 
October  25,  1886.  This  rendered  necessary  Federal 
regulation.      Agitation  for  it  was  started  at  once. 

'  E.  R.  A.  Seligman,  Pol.  Science  Quart.,  vol.  iii.,  400,  Septem- 
ber, 1887. 

2  Clark,  37. 

^  See  quotation  of  this  tenor  from  Kansas  Con.  Rep.,  18S5,  in 
Walker,  24. 

*  Seligman,  P.  S.   Q.,  1887,  vol.  iii.,  400. 

*  Clark,  38. 

*  Wabash,  etc.,  R.  K.  Co.  vs.  Illinois,  118  U.  S.,  557. 


112    Railway  Control  by  Commissions 

It  was  realized  in  the  next  year  in  the  Interstate 
Commerce  Act.'  This  brings  us  back  to  where  we 
left  railway  associations  working  out  by  themselves 
the  problems  of  competition,  discrimination,  and 
consideration.  Our  second  reason  is  now  substan- 
tiated. The  punitive  and  corrective  legislation  after 
1870  was  not  successful.  The  roads  were  them- 
selves working  out  problems,  the  advisory  commis- 
sions were  helping  them.  We  shall  now  see  how 
the  action  of  the  government  balked  them  in  their 
endeavors.  Then,  after  an  exposition  of  divers 
plans  for  settling  these  questions,  the  views  of  the 
present  writer  will  be  set  forward.  The  third  reason 
will  then  be  made  good. 

In  all  the  present  writer's  reading  on  railway  regu- 
lation he  has  never  seen  it  denied  that  discrimination 
cannot  be  avoided  in  the  United  States  except  by 
agreement  between  different  companies  as  to  rates. 
This  principle  is  stated  by  almost  every  writer  on 
the  subject,  and  is  presented  fairly  and  squarely  in 
the  first  annual  reports  of  the  Interstate  Commerce 
Commission.  Yet  the  very  act  under  which  this 
Commission  exists  prohibits  both  discrimination  and 
the  only  means  by  which  it  has  been  effectively  re- 
strained.^ Railway  associations,  we  saw,  exercised 
many  other  functions  than  that  of  regulating  pool- 
ing. At  the  time  when  the  Interstate  Commerce 
Law  went  into  effect,    April   i,    1887,    associations 

'Act  of  Feb.  4,  1887,  Statutes  at  Large,  49th  Cong.,  379^. 
Amendments  50th  Cong.,  855  ff.  "The  Interstate  Commerce 
Act,"  J.  R.  Dos  Passos,  in  "  Questions  of  the  Day." 

''Quoted  in  Walker,  11. 


Regulation  in  the  United  States     113 

did  not  dissolve.  They  lost,  however,  legal  sanction 
for  one  of  their  most  important  purposes.  To  all 
appearances,  associations  really  abandoned  their 
pooling  agreements.'  In  the  case  of  the  Southern 
Railway  and  Steamship  Association  the  twenty  per 
cent,  deposits  were  refunded,  and  a#new  agreement 
signed  with  the  provisions  for  pooling  omitted.^  So 
far  as  the  Commission  had  information  on  the  sub- 
ject, the  pooling  of  freight  and  railway  earnings 
came  to  an  end  when  the  Act  took  effect.'  They 
probably  did  for  a  time.  The  business  of  the  rail- 
ways did  suffer  very  much  from  the  sudden  change 
of  relations.  The  old  evils  of  competition  appeared. 
Weak  and  useless  lines  attempted  to  secure  profit- 
able business  at  the  expense  of  strong  and  useful 
neighbors.*  In  this  attempt  they  were  at  a  decided 
but  unmerited  advantage.  Discrimination  was  in- 
evitable under  such  circumstances.^  Here  the  Act 
had  committed  another  contradiction  in  terms;  it 
expected  the  rates  of  two  roads  to  be  alike,  but 
prohibited  any  agreement  upon  the  subject.  Nor 
could  the  greater  road  find  redress  in  the  tribunal 
provided  by  the  Act.  It  has  often  been  suggested 
that  the  courts  should  back  up  the  Commission  in 
its  quasi-judicial  powers;  the  fact  has  been,  how- 
ever, that  the  Commission  is  not  competent.  Eva- 
sion is  easy,  the  expense  is  great.  Shippers  and 
injured   railways    prefer  to  bear  the  ills  they  have 

'  Henry  Hudson.  ^  Fiy-st  Report. 

*  See  agreements  before  and  after  the  Act  went  into  effect,  Hudson, 
Ii5_^.  •'Hadley,  Q.  J.  E.,  iii.,  175,  January,  18S9. 

'Blanchard,  652/". 


114    Railway  Control  by  Commissions 

than  seek  the  remedy.'  The  Interstate  Commerce 
Act  has,  therefore, destroyed,  by  prohibiting  pooling, 
the  means  of  preventing  discrimination  which  was 
successful  in  the  past,  but  has  not  constructed  ade- 
quate machinery  to  replace  it.  When  in  167  U.  S., 
479  the  court  said  that  the  Interstate  Commerce 
Commission  cannot,  by  deciding  that  a  rate  is  or 
was  reasonable,  fix  a  standard  of  reasonableness  for 
the  future,  the  reason  for  the  existence  of  the  Com- 
mission ceased/  The  probability,  moreover,  that 
this  machinery  can  ever  be  made  adequate  is  very 
remote.  The  sort  of  regulation  that  this  machinery 
contemplates  is  close  national  control.^  This,  in 
order  to  be  effective,  must  be  exclusive;  in  other 
words,  the  conflicts  between  Federal  and  State  con- 
trol at  innumerable  points  must  be  done  away  with, 
an  impossibility  if  railway  regulation  is  to  be  by 
governmental  power  and  our  government  is  to  retain 
its  Federal  nature.  The  problem  of  consolidation, 
in  the  opinion  of  the  present  writer,  is  to  be  worked 
out  in  the  absence  of  arbitrary  government  control. 
That  this  may  be  accomplished  will  be  shown  after 
a  brief  exposition  has  been  given  of  some  other 
plans. 

Meddaugh's   plan  is  this.*     First,  allow  pooling 

'  Meddaugh,  102. 

^Interstate  Commerce  Commission  vs.  C.  N.  O.  &  T.  R.  Railway 
Co.,  167  C/.  5.,  479.  "This  decision,"  said  Harlan,  J.  (168  [/.  S. 
176),  "  when  taken  with  the  course  of  decisions  makes  the  Commis- 
sion a  useless  body." 

^See  Walker,  5. 

■*  E.  W.  Meddaugh,  "  The  Interstate  Commerce  Act :  Suggestions 
for  Improving  It."     Fiti.  Mich.  Pol.  Science  Ass'n,  May,  1S93. 


Regulation  in  the  United  States     115 

agreements;  second,  take  away  the  Commission's 
quasi-judicial  powers;  and  third,  allow  it  to  pre- 
scribe rates  which  shall  he  prima  facie  reasonsible. 
This  plan  must  be  rejected ;  for,  first,  it  does  not 
provide  against  Federal  conflict  and  interstate  com- 
plications; and,  second,  to  allow  a  Commission  to 
establish  rates  prima  facie  reasonable  is  more  tyran- 
nical than  the  rate-making  power  of  the  strongest 
pool.  It  comes  not  from  the  bargainer,  but  from 
government. 

J.  F.  Hudson's  plan  is  to  return  to  the  highway 
theory.'  He  would  allow  the  companies  to  own 
nothing  but  the  roadway.  Any  one  could  use  his 
own  trucks.  This,  he  says,  will  do  away  with  pool- 
ing. The  objections  to  this  are:  first,  that  it  does 
not  go  to  the  root  of  the  matter;  trouble  arises 
not  from  the  monopoly  of  rolling  stock,  but  from  the 
number  of  the  roads;  secondly,  pooling  may  under 
certain  conditions  yet  work  the  solution  of  the  rail- 
way problem  " ;  thirdly,  as  Hadley  says,  it  is  not 
economical  °;  and  fourthly,  it  is  less  easy  to  control 
than  the  present  system. 

Mr.  C.  P.  Huntington's  plan  is  for  a  consolidation 
of  the  roads  into  a  national  system  under  joint 
ownership  by  private  enterprise."  This  plan  seems 
to  be  in  the  right  direction.  It  is  probably  what 
we  shall  come  to  after  a  long  time.     One  important 

'  Railways  and  the  Republic. 

*G.  H.  Lewis,  National  Consolidation,  106-110. 

*  Quoted  in  Lewis,  no. 

*  A  Plea  for  Railway  Consolidation,  by  CoUis  P.  Huntington, 
President  Southern  Pacific. 


ii6    Railway  Control  by  Commissions 

stage  must,  however,  intervene.  Joint  ownership 
of  all  the  railways  is  not  only  too  remote  to  be  prac- 
ticable; it  has  dangers,  and  is,  furthermore,  unneces- 
sary. All  of  the  advantages  can  be  attained  by  joint 
management,  with  pooling  agreements,  under  proper 
regulation.  As  has  been  well  said,  unless  railway 
managers  can  associate,  railway  owners  must  com- 
bine. The  corollary  is  that  when  railway  managers 
can  associate  they  need  not  combine.  Many  of  the 
evils  of  great  national  consolidation  of  wealth  may 
thus  be  avoided.' 

If  we  reject  this  plan  for  national  consolidation, 
how  much  sooner  shall  we  reject  a  proposal  for 
national  consolidation  under  public  ownership! 
This  is  the  proposal  of  Mr.  George  H.  Lewis  in  his 
recent  book."  The  roads  are  to  be  public,  appoint- 
ments are  to  be  made  by  the  government,  and  the 
whole  system  to  be  called  the  Consolidated  Railway 
Company  of  the  United  States.  This  proposal  is 
met  very  aptly  by  one  writer  with  a  quotation  from 
the  preamble  of  the  Constitution  which  specifies  as 
the  purpose  of  our  government  "  to  secure  the  bless- 
ings of  liberty  for  ourselves  and  our  posterity  "  ;  it 
is  clinched  by  the  same  writer  by  a  description  of 
the  distribution  of  patronage  to  over  500,000  gov- 
ernment employes.'  Hadley  has  also  anticipated 
this  proposal  by  a  discussion  of  two  of  the  great 
problems  with  which  railway  companies  have  had  to 

'  Walker,  23. 

"^  George  Henry  Lewis,  The  National  Consolidation  of  the  Railways 
0/ the  United  States,  xii.,  199-228. 

•*  James  F.  Wilson,  Forum,  v.,  469,  June,  1888. 


Regulation  in  the  United  States     117 

struggle,  namely,  rates  and  employes.'  The  gov- 
ernment of  the  United  States  can  make  better  use 
of  its  own  energy  and  the  attention  of  the  people 
than  to  assume  difficulties  so  obviously  belonging  to 
private  enterprise. 

One  proposal,  finally,  is  worthy  of  our  attention, 
not  because  it  has  any  value,  but  because  it  suggests 
the  true  policy  for  our  governments.'*  It  is  built  up 
out  of  an  analogy  between  the  railways  and  the 
banks.  The  writer  says  that  our  banks  were  once 
in  a  chaotic  condition;  that  at  the  present  time 
they  are  regulated  with  great  efficiency  by  a  national 
department,  the  Treasury.  From  this  he  concludes 
that  the  same  regulation  should  be  extended  over 
the  railway  system.  He  is  led,  however,  to  ex- 
tremes by  his  proposal.  Not  only  should  there  be 
a  national  commission,  but  it  should  have  power  to 
fix  rates.  Going  back  to  the  national  bank  analogy, 
we  may  ask  him,  "  Does  the  Treasury  Department 
fix  the  rate  of  discount  ?  "  When  this  writer  de- 
livers himself  of  the  following 

"  The  existing  condition  of  things  is  unworthy  of  us  as 
a  nation.  It  should  not,  it  cannot,  go  on  forever.  Why 
not  then  meet  the  question  now  ?  Are  we  not  great 
enough  and  big  enough  to  do  what  is  right  and  best  for 
the  country's  good,  even  though  in  so  doing  we  may 
make  a  new  departure,  and  go  back  on  the  time-worn 
theories  as  to  the  rights  of  the  States  and  the  functions 
of  our  national  government  ?  " 

'  Hadley,  Forum,  v.,  429,  June,  1888. 

*  Frederick  Taylor  in  Forum,  vol.  v.,  May,  1S88,  299  ;  Ibid.,  309  ; 
Taylor,  319. 


ii8    Railway  Control  by  Commissions 

we  cannot  follow  him,  and  feel  only  the  more  con- 
vinced that  no  good  can  come  to  American  govern- 
ment either  by  radical  measures  or  unnecessary 
complications  in  relation  to  the  railways. 

Believing,  then,  that  the  railway  question  in  the 
United  States  will  work  itself  slowly  to  the  satis- 
faction of  all,  the  present  writer  rejects  all  the  above 
proposals,  and  sets  forth  as  his  own  a  plan  by  which 
this  will  be  brought  about  with  the  greatest  amount 
of  assistance  from  the  State  and  National  govern- 
ments, and  with  the  least  violations  of  those  prin- 
ciples of  American  government  and  industry  which 
we  would  at  any  cost  preserve.  This  proposal 
divides  itself  into  three  co-ordinate  parts:  first,  that 
pooling  be  permitted;  second,  that  the  quasi- 
judicial  power  of  the  Interstate  Commission  be 
taken  away;  and,  third,  that  a  system  of  State 
Commissions  be  developed  on  the  plan  of  the  Massa- 
chusetts Commission,  to  work  in  active  co-operation 
with  an  Interstate  Commerce  Commission  organized 
upon  the  same  basis.'  That  this  should  be  the 
method  of  regulation  in  the  United  States  will  be 
shown  by  three  reasons.  The  first  is  that  pooling 
will  settle  many  questions  to  the  advantage  of  the 
three  parties  interested,  namely,  the  railways,  the 
investors,  and  the  public.  The  second  is  that  pool- 
ing cannot  be  prevented,  and  that  the  judicial  power 
of  the  Interstate  Commerce  Commission  is  useless. 
The  third  is  that  the  Massachusetts  system,  besides 
achieving  more  in  railway  regulation  in  the  interest 

'  Attempts  at  such  regulation  have  been  made  under  present  con- 
ditions, and  have  accomplished  much. 


Regulation  in  the  United  States     119 

of  the  public,  has  not  only  allowed  the  railway  ques- 
tion to  work  itself  out,  but  has  done  no  violence  to 
the  fundamental  principles  of  American  trade.  This 
last  point  will  be  substantiated  by  a  review  of  the 
experience  of  the  Massachusetts  Commission.  For 
this  exposition  a  new  chapter  will  be  needed. 


CHAPTER  IX 

THE   MASSACHUSETTS  COMMISSION  AS  A   GUIDE  TO 
AMERICAN   RAILWAY   CONTROL 

THE  merits  of  the  plan  proposed  in  the  last 
chapter  and  the  reasons  for  its  adoption  will 
be  brought  out  in  a  description  of  the  work  of  the 
Massachusetts  Commission.  They  will  not,  there- 
fore, be  taken  up  in  their  logical  order. 

The  appointment  of  a  permanent  Commission  in 
Massachusetts  in  1869  to  relieve  the  Legislature  of 
some  of  its  work  in  looking  after  the  railways  of  the 
Commonwealth  first  brought  the  commission  system 
into  prominence.  Yet  the  idea  had  existed  in 
America  as  early  as  1844.  New  Hampshire  in  that 
year  established  a  board  to  inspect  the  roads  and  to 
make  a  report  to  the  Legislature.  This  was  the  first 
Commission  in  this  country.  The  example  was  in 
time  taken  up  by  other  States.  Temporary  boards 
of  arbitration  were  established  in  New  York  in  1850. 
Connecticut  created  the  same  sort  of  Commission  in 
1853, Vermont  in  1855,  Maine  in  1858,  Ohio  in  1867.' 
In  Massachusetts  a  general  railway  law  provided 
that  every  corporation  should  at  all  times  submit  its 
books  to  any  committee  whom  the  Legislature  might 
choose  to  appoint  for  that  particular  purpose.'    Acts 

"Clark,  23.  "^  Ibid.,  26,  27. 


The  Massachusetts  Commission     121 

were  passed  providing  for  a  temporary  commission 
whose  duty  it  should  be  to  determine  in  co-operation 
with  Commissioners  from  another  State  what  amount 
of  the  profits  pertained  to  the  portion  of  the  road 
lying  within  each  State.  Such  temporary  commis- 
sions were  unsuccessful.  The  railroads  would  not 
co-operate  with  them,  and  deliberately  turned  in  re- 
ports that  were  worthless.  The  common  impression 
that  all  was  smooth  sailing  for  the  Commission  in 
Massachusetts  is  false.  The  proposal  of  a  perma- 
nent Commission  met  with  vigorous  opposition  from 
the  roads.'  When,  in  1869,  the  Commission  was 
established  in  spite  of  the  protests  of  the  roads,  its 
position  was  an  extremely  delicate  one.  In  order 
to  do  the  best  service  to  the  State  and  the  roads  it 
was  necessary  that  its  policy  should  be  tentative, 
yet  firm  and  persistent.  It  was  important  that  this 
should  be  appreciated  by  the  members  of  the  first 
commissions  appointed  in  accordance  with  the  act. 

They  were  to  be  there  in  number,  appointee^  by 
the  Governor,  the  choice  resting  strictly  upon  their 
qualifications.  The  theory  of  the  advocates  of  the 
law  was  that  one  member  should  be  a  lawyer, 
another  a  merchant,  and  the  third  an  engineer. 
This  was  not  embodied  in  the  law,  but  was  prac- 
tically carried  out  in  the  first  appointments.  Mr. 
James  C.  Converse,  President  of  the  Boston  Board 
of  Trade,  was  appointed  as  a  merchant,  and  made 
chairman.      Mr.  Charles  Francis  Adams  was  chosen 

'  W.  A.  Crafts,  "  The  Massachusetts  Railroad  Commission,"  En- 
gineering Magazine,  No.  5,  1895,  2S6.  Mr.  Crafts  was  at  the  out- 
set and  still  is  Secretary  to  the  Massachusetts  Commission. 


122    Railway  Control  by  Commissions 

as  a  lawyer.  He  succeeded  to  the  chairmanship 
three  years  later,  but  was  the  leader  from  the  first. 
Mr.  Adams  practically  formulated  the  policy  of  the 
Commission,  marked  out  its  work,  wrote  its  reports 
and  decisions.* 

The  functions  usually  given  to  commissions  in 
the  early  seventies  were  three:  police  regulation  of 
inspection,  arbitration,  and  fixing  the  maximum 
rates.  When  a  commission  is  given  all  three  func- 
tions, it  is  for  the  purpose  of  classification  called  the 
"  regulative  commission,"  or  the  "  commission  with 
power."  In  this  class  were  the  Western  Commis- 
sions. We  have  already  reviewed  the  work  of  the 
Illinois  Commission  as  a  type  of  this  class.  When  a 
commission  has  only  the  functions  of  the  inspection 
and  arbitration,  it  is  called  a  "  supervisory  commis- 
sion "  or  an  "  advisory  commission."  Of  this  class 
the  Massachusetts  Commission  is  the  type.  Some 
commissions  have  the  powers  of  a  court  of  law,  or 
qu^si-judicial  functions.  Such  is  the  Interstate 
Commerce  Commission.* 

The  Massachusetts  Commission  repeatedly  de- 
clared that  it  would  accept  no  powers  other  than 
those  of  inspection  and  arbitration.  The  function 
of  fixing  rates  it  disavowed  as  not  a  fit  subject  for 
it  and  as  inconsistent  with  its  usefulness  as  arbitra- 
tor. "*  Judicial  functions  were  better  left  to  the 
machinery  of  the  common  law.  It  hoped  by  inves- 
tigation and  discussion  to  educate  the  public,  the 
railroad  managers,  and  the  Legislature,  and  so  to 

'Crafts,  2S8.        '■'Dixon,  State  Railroad  Control ;  Clark,  25. 
^  Crafts,  292. 


The  Massachusetts  Commission     123 

substitute  for  the  snap-judgment  of  the  average 
legislator,  the  impulses  of  popular  agitation,  and 
the  animosity  of  wounded  railway  owners,  the  care- 
fully studied  opinion  of  experts,  enlightened  opinion 
on  the  part  of  the  public,  and  confidence  in  the 
judgment  of  the  Legislature  and  the  Commission  on 
the  part  of  the  railways.'  Thus,  while  in  the  West 
the  fundamental  idea  behind  every  railroad  act  was 
force,  the  Commission  representing  the  constable,  in 
Massachusetts  the  fundamental  idea  was  publicity, 
the  Commission  representing  public  opinion." 

That  this  policy  was  wise  no  one  now  doubts.  It 
is  the  custom,  however,  to  attribute  its  success  to 
the  personnel  of  the  Commission,  to  the  general 
tone  of  legislation  in  the  Commonwealth,  and  to  the 
general  situation  in  which  the  roads  found  them- 
selves. It  is  true  that  there  was  no  dominant  road 
in  the  State,  and  no  great  interest  suspected  of  too 
great  power,  but  there  had  been  parallel  roads  built, 
and  the  railway  companies  had  shown  themselves 
for  years  very  irritable  in  the  matter  of  interference, 
and  strong  in  opposing  it.  When  it  is  said  that  in 
1873  the  roads  had  been  arranged  so  as  to  avoid 
much  competition,  it  should  be  remembered  that 
this  was  the  work  of  the  policy  in  question.  That 
it  prepared  the  way  for  its  own  success  is  a  merit  of 
the  policy,  not  an  argument  against  it. 

When  the  tone  of  general  legislation  in  Massachu- 
setts is  referred  to  in  order  to  diminish  the  merit  of 
this  policy,  it  should  be  remembered  that  the  first 

'  Crafts,  288. 

*  The  Railroad  Problem,  Chas.  Francis  Adams,  138. 


124    Railway  Control  by  Commissions 

members  of  the  Massachusetts  Commission  had 
some  very  unwise  legislation  to  counteract,  and  that 
it  is  an  essential  part  of  this  policy  to  raise  the  tone  of 
legislation.  When  we  remember  this,  the  fact  that 
it  was  itself  a  good  piece  of  legislation,  and  a  prod- 
uct of  Massachusetts,  should  not  blind  us  to  its 
intrinsic  merits.  When  it  is  said  that  the  same 
policy  could  not  have  succeeded  in  the  West,  it 
should  be  remembered  that  the  West  deliberately 
adopted  some  of  its  methods  in  preference  to  the 
more  stringent  ones  which  the  Supreme  Court  con- 
firmed to  it.  Admitting  that  the  policy  of  the 
Massachusetts  Commission  could  not  have  succeeded 
under  the  conditions  which  existed  in  1870  in  the 
South  and  West,  that  furnishes  no  reason  why  it 
cannot  succeed  when  this  territory  has  attained 
the  normal  degrees  of  demographic  and  economic 
maturity.'  But  this  is  something  more  than  the 
policy  of  the  future;  it  creates  conditions.  Its  very 
essence  is  its  adaptability. 

This  is  particularly  true  of  the  question  of  mem- 
bership. To  say  that  the  success  of  the  Massachu- 
setts Commission  is  due  to  Mr.  Adams  is  not  to  give 
him  too  much  credit,  but  it  is  mistaking  cause  for 
effect.  The  Massachusetts  system  calls  forth  good 
men ;  incapable  men  cannot  exist  under  it.  Imagine 
an  unscrupulous  politician  accepting  a  place  on  the 
Massachusetts  Commission.  His  only  power  would 
be  his  own  ability.  If  he  did  not  possess  any,  pub- 
licity would  soon  find  him  out.  In  the  case  of  good 
men,  publicity  calls  out  all  that  there  is  in  them. 

'  Paul-Dubois,  i8o,  i8i. 


The  Massachusetts  Commission     125 

Any  man  can  hold  a  position  when  arbitrary  power 
is  given  him ;  even  if  he  have  ability,  he  will  get 
along  without  exerting  it  unless  he  has  great 
strength.  To  say  that  Charles  Francis  Adams 
framed  the  policy  of  the  Massachusetts  Commission 
and  guided  its  execution  does  not  lessen  the  adapt- 
ability of  that  policy  or  its  intrinsic  merits.  It  is  of 
its  essence  to  bring  capable  men  to  the  task  in 
question,  then  to  bring  out  all  the  good  there  is  in 
them.  Believing,  then,  that  it  would  have  suc- 
ceeded in  the  West,  let  us  see  how  it  succeeded  in 
the  East. 

The  work  to  which  the  Commission  first  gave  its 
attention  was  of  a  breadth  well  calculated  to  com- 
mand respect.  It  struck  at  the  root  of  the  railway 
evil  as  it  was  then  showing  itself,  and  directed  con- 
struction toward  the  building  up  of  the  resources 
both  of  the  Commonwealth  and  its  railways. 

"  Roads  running  to  tidewater,"  it  is  said,  "  are  less 
needed  than  roads  thoroughly  equipped  and  developed 
running  to  the  doors  of  our  workshops.  A  substantial 
revival  of  our  foreign  commerce  must  be  looked  for,  not 
in  a  costly  forcing  process,  or  in  a  close  competition  with 
more  naturally  favored  localities,  but  in  a  more  complete 
development  of  those  industries  which  we  have  success- 
fully made  our  own.  Massachusetts  is  a  crowded  manu- 
facturing community  ;  its  railroads  should  be  adapted  to 
its  actual  requirements."  ' 

The  spirit  in  which  the  Commission  made  this 
recommendation  is  shown  by  their  general  policy. 

""  First  Report,  1S69,  29. 


126    Railway  Control  by  Commissions 

An  illustration  of  it  is  found  in  their  action  on 
another  far-reaching  proposal.  In  their  report  of 
1870  the  Commission  recommended  the  purchase  of 
the  Fitchburg  road,  to  be  managed  by  the  Com- 
monwealth in  competition  with  all  private  roads.' 
This  was  an  imitation  of  the  Belgian  system,  for 
which  Mr.  Adams  had  great  admiration.*  On 
February  14,  1873,  in  a  speech  before  the  Joint 
Standing  Committee  on  Railways,  he  said:  "  The 
very  essence  of  the  system  of  State  management 
lies,  not  in  the  ownership  of  all  the  railroads  by  the 
government,  but  in  the  control  of  the  whole  through 
the  ownership  and  management  of  a  part."  '  When 
a  few  weeks  later  this  plan  was  very  effectively  an- 
swered by  Richard  S.  Spofford  the  proposal  was 
withdrawn."  It  was  characteristic  of  the  Commis- 
sion to  put  its  views  in  a  fair  light,  but  not  to  insist 
on  anything  but  a  fair  consideration.  When  this 
had  been  given  they  were  satisfied,  and  left  it  for 
the  Legislature  to  decide  uninfluenced.  In  this  lay 
their  strength. 

There  were  two  other  policies  which  the  Commis- 
sion inaugurated  at  the  outset  which  gave  it  a  firm 
hold  on  the  respect  both  of  the  roads  and  the  pub- 
lic. The  first  was  that  of  reducing  fares  and  freight 
rates  so  as  to  produce  trafific.^  This  was  taken  up 
rapidly,  and  not  only  conferred  a  great  benefit  on 
the  public  but  swelled  the  profits  of  the  roads.  The 
second   was   the   compilation    of   the   laws   of   the 

'  Rep.,  1870,  64.  ''Adams  on  Belgian  System. 

^  Speeches,  C.  F.  Adams,  Harv.  Lib.,  vii.,  440,  18. 

•*  Harv.  Lib.,  vi.,  32,  34.  ^ Rep.,  1869,  41. 


The  Massachusetts  Commission     127 

Commonwealth  on  railways.  These  were  scattered 
through  950  special  acts.  Bringing  these  together, 
the  Commission  made  it  more  easy  for  the  public  to 
assert  its  rights.  It  was  now  easy  to  find  out  which 
roads  possessed  charter  rights,  and  what  they  were. 
This  aided  greatly  in  reducing  the  barefaced  black- 
mail speculation  which  had  existed,  and  conferred  a 
great  benefit  on  the  legitimate  railway  enterprise.' 
Such  recommendations  as  these,  and  the  abolition  of 
the  payment  of  money  fares  on  the  trains,  afforded 
so  much  protection  to  the  roads  that  they  were 
ready  to  see  some  good  in  the  regulations  to  which 
the  Commission  was  about  to  ask  their  assistance. 
This  was  in  the  simplification  of  railway  statistics. 

Previous  to  1870,  and  for  some  time  after,  the  ac- 
counting of  American  railways  had  been  confused 
and  non-committal.  They  had  been  submitted  to 
the  Secretary  of  State,  an  ofificer  so  overworked  that 
he  had  no  time  to  give  to  them.  The  Commission 
had  the  law  changed  to  make  reports  returnable  to 
the  Commissioners.*  They  summarized  them  and 
sent  them  to  the  Secretary  of  State.  The  first  re- 
ports submitted  were  not  only  defective  but  utterly 
worthless  for  comparison  of  one  road  with  another 
and  for  computation  of  general  results  and  averages. 
To  reform  the  book-keeping  of  old  railroad  ofificials 
was  not  easy.  They  had  to  be  persuaded  of  the 
unfairness  of  comparing  results  shown  by  different 
systems,  but  uniformity  was  soon  secured.^  As 
soon  as  a  good  standard  was  reached  throughout  the 
Commonwealth,  they  made  efforts  to  have  it  adopted 

'Crafts,  290.  "^  Rep.,  1869,  45,  64.  '^  Hep.,  1870,  8. 


128    Railway  Control  by  Commissions 

throughout  the  country.'  At  the  Convention  of 
Railway  Commissions,  at  Saratoga,  in  1879,  they 
suceeded  in  getting  a  uniform  return  adopted.* 
Thus  the  Massachusetts  system  of  accounting  has 
been  held  up  as  a  model  by  expert  accountants  and 
made  its  influence  felt  in  all  the  other  States.  Their 
work  has  been  of  inestimable  value,  not  only  to  the 
public  and  to  students  of  railway  questions,  but  to 
the  railroads  themselves.^ 

Yet  the  results  attained  by  adherence  to  wise 
policies  of  wide  scope  have  not  been  greater  than 
those  reached  by  attention  to  technical  details.  The 
Act  of  1869  had  said  : 

"  Sec.  7.  The  Commissioners  shall  have  the  general 
supervision  of  all  railways  and  railroads,  and  shall  exam- 
ine the  same,  and  keep  themselves  informed  as  to  their 
condition  and  the  manner  of  their  operation,  with  refer- 
ence to  security  and  accommodation  of  the  public  and 
the  compliance  of  the  several  corporations  with  the  pro- 
visions of  their  charters  and  the  laws  of  the  Common- 
wealth." * 

In  accordance  with  this  Act  it  was  the  custom  of  the 
Commissioners  to  go  over  every  mile  of  railroad  in 
the  Commonwealth  for  the  purpose  of  inspection  at 
least  once  a  year.  This  was  done  in  a  special  car, 
in  company  with  the  bridge  engineer,  the  inspector 
of   the    Commission,   and   the    superintendent  and 

'  /^ej>.,  1878,  25.  ^  Bid.,  87. 

^  Railway  Expenditures,  Their  Object  and  Economy,  Marshall 
Kirkman,  i.,  54,  55,  249;  ii.,  43-4^,  34i- 

■*  Laws  relating  to  the  Commission,  Appendix  of  Adams,  218. 


The  Massachusetts  Commission      129 

master  of  construction  and  repair  of  the  railroad. 
Stops  were  made  at  each  station,  bridge,  and  other 
desired  points,  with  a  view  to  ascertaining  the  con- 
dition of  construction  and  equipment.  In  1894  part 
of  this  work  was  given  to  three  inspectors,  appointed 
to  give  their  whol^  time  to  the  detailed  examination 
of  the  machinery,  cars,  and  locomotives,  and  to  the 
investigation  of  accidents.  This  inspection  has 
already  proved  very  useful,  and  has  done  much 
toward  hastening  the  introduction  of  power  brakes, 
automatic  couplers,  and  similar  safeguards  against 
accident.' 

Similar  to  this  was  the  experience  of  the  Commis- 
sion in  the  introduction  of  improvements  and  econ- 
omies. The  following  are  some  of  the  economies 
that  had  been  secured  up  to  the  present  day :  the 
automatic  block  system,  continuous  or  train  brakes, 
tools  in  passenger  cars  for  use  in  emergencies,  the 
abolition  of  common  stoves  and  heating  of  passen- 
ger cars  by  steam  from  the  locomotive,  heating  of 
street  railway  cars  by  electricity,  interlocking  signals 
and  switches  at  grade  crossings  and  terminals,  and 
the  gradual  abolition  of  grade  crossings.*  Nor  did 
their  work  stop  at  the  borders  of  the  Common- 
wealth. Owing  to  the  interchange  of  rolling  stock 
in  through  traffic  many  improvements  could  not  be 
brought  about  by  the  efforts  of  any  single  State. 
The  subject  was  brought  before  the  convention  of 
railroad  commissioners  by  the  Massachusetts  Com- 
mission. Through  its  efforts,  seconded  by  the 
Commissions   of   other    States,   many    Legislatures 

'  Statistics  in  Report,  1895,  37-45.  '^  Crafts,  289. 

9 


I30    Railway  Control  by  Commissions 

adopted  resolutions  requesting  Congress  to  take 
action  on  that  subject.  Thus  in  1893  a  Federal 
law  was  passed  requiring  that  after  certain  dates  all 
freight  cars  used  in  interstate  commerce  should  be 
equipped  with  automatic  couplers,  that  all  trains 
should  have  automatic  brakes  cperated  from  the 
locomotive,  that  all  locomotives  should  have  power- 
driving  wheel  brakes,  and  that  each  freight  car 
should  have  grab-irons  for  the  safety  of  employes." 
The  policy  of  the  Commission  has  not  been  to  force 
the  railways  to  provide  facilities,  but  to  decide  in 
case  of  complaint  whether  accommodations  should 
be  furnished.  The  result  has  been  that  railroad 
managers  have  acknowledged  themselves  fairly  dealt 
with,  and  the  communities  have  been  satisfied. 
This  system  of  bringing  experience  to  bear  on  the 
introduction  of  improved  facilities  and  economies 
has  been  employed  by  the  Commission  as  not  only 
the  safer  way  but  in  the  long  run  as  the  better  and 
more  effective  way  of  reducing  rates.'*  Under  its 
influence,  in  concurrence  with  the  natural  laws  of 
trade,  rates  have  gone  down  steadily.  The  re- 
duction has  been  great  on  the  through  lines  con- 
necting with  the  West;  local  rates  have  also  gone 
down,  though  not  in  so  pronounced  a  degree.  The 
following  tables  show  the  reduction  in  rates  on  all 
Massachusetts  roads  from  1871  to  1895. 

'Crafts,  292.  '^  Rep.,  1895,  37-45. 


The  Massachusetts  Commission     131 

Average  Passenger  Fares  per  Mile, 

1871-1895. 

Years.            Fares.  Years.            Fares. 

1 87 1 2.51   1884 1.92 

1872 2.43   1885 1.88 

1873 2.32   1886 1.88 

1874 2.30   1887 1.85 

1875 2.30   1888 1.90 

1876 2.23   1889 1.87 

1877 2.22   1890 1.82 

1878 2.18   1891 1.83 

1879 2. II   1892 1.83 

1880  - 2.05   1893 1.83 

1881 2.02   1894 1.80 

1882 , 2.00   1895 1.78 

1883 2.00 

Average  Freight  Rates  per  Ton  Mile. 

1871-1895. 

Years.             Rate.  Years.             Rate. 

1 87 1 3. 1 1   1884 1.64 

1872 2.81   1885 1.59 

1873 2.75   1886 1.64 

1874 2.64   1887 1.62 

1875 2.45   1888 1.50 

1876 2.17   1889 1.55 

1877 2.07   1890 1.45 

1878 1.92   1891 1.42 

1879 1. 91   1892 1.36 

1880 1.82   1893 1.39 

1881 1.7 1   1894 1.33 

1882 1.7 1   1895 1.28 

1883 1.72 


I  ^2 


Railway  Control  by  Commissions 


Having  now  almost  completed  its  gigantic  task  of 
bringing  about  the  abolition  of  grade  crossings,  the 
Commission  is  at  present  engaged  in  the  develop- 
ment of  the  railroad  express  traffic' and  the  introduc- 
tion of  electricity  as  a  motive  power  on  the  roads  of 
the  Commonwealth.  This  shows  how  alert  the 
Commission  has  been  to  the  needs  and  interests  of 
the  public'  The  following  account  of  its  activity  in 
a  more  dignified  sphere  will  show  not  only  that  they 
did  not  find  it  necessary  to  violate  any  of  the  rights 
of  the  railways,  but  that  they  found  it  possible  to 
aid  the  public  the  more  efficiently  by  guarding  the 
interests  of  the  railways. 

The  Act  of  1869  provided  that  upon  the  com- 
plaint and  application  of  the  mayor  and  aldermen  of 
any  city,  or  the  selectman  of  any  town  in  which  any 
part  of  a  railroad  complained  of  was  located,  it 
should  be  the  duty  of  the  Commission  to  make  an 
examination  of  the  conditions.  If  upon  examina- 
tion it  should  appear  that  the  complaint  was  well 
founded,  they  should  adjudge  and  inform  the  corpo- 
ration of  its  judgment,''  The  Commission  was  not 
given  any  judicial  power.  It  had  the  right  to  make 
its  decisions  so  manifestly  just  that  it  would  be  ac- 
ceptable to  both  parties.  More  power  than  this  it 
would  not  assume.  It  believed,  as  the  experience 
of  the  Interstate  Commerce  Commission  has  shown, 
that  more  power  would  be  not  only  useless  but  a 
positive  stumbling-block. 

'  Reports,  1874-96,  passim.  ;  Rep.,  1869,  66  ;  Rep.,  1895,  123-140  ; 
Ibid.,  10-26. 

*Sec.  II.  Act  of  1869,  Adams,  Appendix. 


The  Massachusetts  Commission      133 

On  the  question  of  reasonable  rates  the  Commis- 
sion took  a  firm  stand,  at  the  outset,  in  the  middle 
ground  between  the  corporation  and  the  public.  In 
1 871  it  declared  its  position  as  follows: 

"When  the  Board  is  asked  to  recommend  to  a  corpo- 
ration a  reduction  of  its  freight  tariff  in  respect  to  a  par- 
ticular commodity  it  is  necessary  for  the  petitioner  to 
prove  at  least  one  of  these  three  propositions  : ' 

"^.  That  the  charge  by  the  corporation  respondent 
in  regard  to  the  commodity  in  question  is  excessive  as 
compared  with  the  charge  made  by  other  companies, 

"  b.  That  the  charge  is  excessive  as  compared  with 
the  charges  of  the  same  corporation  for  other  commodi- 
ties of  like  bulk  and  weight. 

"  c.  That  exceptional  reasons  exist  which  would  allow 
the  corporation  to  transport  the  commodity  in  question 
with  a  fair  profit  at  a  rate  unusually  low." 

In  all  complaints  that  came  before  it  the  Board 
disclaimed  any  power  to  fix  rates  of  fare  or  of 
freight.'  It  could  only  say  that  it  thought  a  certain 
rate  unreasonable  under  the  circumstances.  In  the 
matter  of  discrimination  it  left  something  to  the  dis- 
cretion of  the  roads.  This  will  be  seen  from  the 
following  decisions.  The  principle  that  wholesale 
transactions  furnish  reasonable  ground  for  lower 
rates  was  held    not    to   apply  to  the  case  of  like 

'Freetown  vs.  New  Bedford  and  Taunton  R.  R.  Co.,  1871,  115. 
For  a  key  to  the  decisions  of  the  Commission  see  Wigmore's  Digest 
and  Index  of  Massachusetts  Commission. 

«  Medford  vs.  B.  &  L.  R.  Co.,  1884,  149  ;  Dalton  vs.  B.  &  L.  R. 
Co.,  1S85,  128;  Brookline  vs.  B.  &  A.  R.  Co.,  1885,  134;  Win- 
throp  vs.  B.,  R.,  B.  &  L.  R.  Co.,  1885,  139. 


134    Railway  Control  by  Commissions 

amounts  hauled  from  time  to  time,  but  hauled  more 
frequently  for  one  customer  than  for  another. 
When  the  quantity  carried  at  one  time  is  the  same, 
the  rate  should  be  the  same  for  all  persons.'  But 
it  is  not  a  discrimination  to  charge  a  lower  rate  for 
a  car  load  than  for  a  partially  loaded  car.  Further, 
if  special  freight  rates  from  one  terminus  to  a  given 
point  are  made  to  certain  parties  on  account  of  large 
quantities  of  the  commodity  carried  for  the  parties, 
and  are  open,  for  the  same  quantities,  to  all  other 
parties,  the  rates  do  not  constitute  a  violation  of  the 
statute ;  but  if  the  rates  are  made  simply  on  account 
of  competition  at  the  point  in  question,  and  are 
denied  to  other  parties  receiving  equal  quantities  at 
points  nearer  to  the  terminus,  the  rates  are  dis- 
criminating.* Further,  the  long  and  short-haul 
provision  of  the  statute,  forbidding  a  higher  charge 
for  a  less  distance  from  the  same  point  of  departure 
in  the  same  direction,  applies  to  the  carriage  of 
freight  taken  up  outside  the  Commonwealth  and 
brought  within  it.^  It  is,  further,  the  duty  of  the 
roads  to  bring  raw  material  into  the  Commonwealth 
at  a  low  rate." 

We  have  thus  reviewed  the  application  which  the 
Massachusetts  Commission  made  of  its  plan  of  regu- 
lation. In  no  State  in  the  Union  has  there  been  a 
more  efificient  Commission,  less  friction  between  the 

'  Clapp  vs.  Hanover  Bridge  R.  R.  Co.,  iS8i,  42,  214. 
"^  In  Re  Coal  Rates  in  Berkshire  Co.,  1877,  66. 
3  Stevens's  Linen  Works  vs.  N.  Y.  &  N.  E.,  1883,  32  ;  Anon  vs. 
Housatonic  R.  R.  Co.,  1886,  38. 

■•Bel  Air  M'fg  Co.  vs.  B.  &  A.  R.  Co.,  1887,  79. 


The  Massachusetts  Commission     135 

railways  and  the  public,  or,  on  the  whole,  more 
satisfactory  service  by  the  railroads.  If  its  success 
can  be  attributed  to  any  one  thing,  it  is  to  the  fact 
that  the  Commission  had  absolutely  no  arbitrary 
power.  As  has  been  said  by  a  very  keen  French- 
man, this  system  answers  better  than  any  other 
to  the  qualities  of  private  and  individual  initiative 
and  of  practical  broad-mindedness  inherent  to  the 
American  people.'  He  might  have  added  that  it  is 
the  only  system  compatible  with  the  federal  nature 
of  our  government.  It  has  been  the  failure  of  some 
States  to  recognize  this  that  has  made  uniform 
regulation  impossible.  It  was  early  found  that 
trafific  could  not  be  cared  for  by  any  one  State  owing 
to  the  divergence  in  the  powers  of  various  States. 
If  all  the  States  had  assumed  only  the  powers  of  the 
Massachusetts  Commission  there  would  have  been 
no  conflict.  Police  regulation  is  a  function  properly 
appertaining  to  the  State.  But  some  States  claimed 
the  right  to  fix  the  rates.  If  they  had  this  right 
over  internal  traffic,  they  would  certainly  concede  it 
to  the  national  government  over  interstate  traflfic. 
As  this  formed  the  most  important  part  of  railway 
business,  it  was  assumed  that  the  Federal  Govern- 
ment would  take  the  powers  of  all  the  States.  Mas- 
sachusetts anticipated  this  danger,  and  welcomed 
a  form  of  regulation  more  compatible  with  local 
government  and  the  liberty  of  American  trade  than 
the  absorption  of  State  powers  by  the  national 
government.      This  regulation  knew  n-o  State  lines, 

'  Louis  Paul-Dubois,  Les  Chetnins  de  Fer  aux  Etats   Unis,  1896, 
180. 


i3<^    Railway  Control  by  Commissions 

its  extent  was  coterminous  with  its  utility;  it  was 
pooling.  It  had  not  yet  been  declared  unconstitu- 
tional, and  the  Massachusetts  Commission  gave  it 
sanction  and  support.  Several  of  the  great  pools 
had,  during  1878,  brought  the  Commonwealth  within 
the  scope  of  their  operations.  For  the  time  being 
all  the  railroad  intercourse  between  Massachusetts 
and  the  interior — east  and  west  —  was  conducted 
under  an  agreement  for  the  division  of  business 
between  carriers.'  Although  the  extent  of  such 
operations  and  the  effect  of  the  arrangement  cer- 
tainly gave  matter  for  consideration,  the  Commis- 
sioners, for  reasons  already  set  forth,  saw  no  reason 
for  apprehension.''  They  had  carefully  weighed  the 
great  pools,  and  in  1878  set  forth  the  history  of  the 
following:  (i)  The  Omaha  Pool,  (2)  The  Southern 
Railway  and  Steamship  Association,  (3)  The  South- 
western Rate  Association,  (4)  The  Colorado  Pool, 
(5)  The  Cattle  Pool,  (6)  The  Oil  Pool,  (7)  The 
Westbound  Freight  Pool,  and  (8)  The  Eastbound 
Freight  Compact.'  The  Board  expressed  the  con- 
clusions of  its  examination  as  follows  : 

"Contrary  to  the  general  and  popular  convictions,  the 
Commission  has  always  maintained  that,  so  far  from 
being  necessarily  against  public  policy,  a  properly  regu- 
lated combination  of  railroads,  for  the  avowed  purpose  of 
controlling  competition,  might  prove  a  useful  public 
agency.  The  end  is  to  secure  the  advantages  of  compe- 
tition and  to  modify  or  wholly  get  rid  of  its  abuses,  such 
as  waste,  discrimination,  instability  and  bankruptcy."  * 

'  Rep.,  i88r,  36,  37.  "^  Rep.,  1879,  66. 

^ Report  iox  1877,  65-94.  ^ Rep.,  \^11,  87. 


The  Massachusetts  Commission 


J/ 


The  trouble  was  that  these  combinations  were  not 
to  be  properly  regulated.  They  were  before  many 
years  declared  illegal.  As  a  substitute,  there  was 
placed  the  "  commission  with  power,"  of  which  the 
Massachusetts  Commission  disapproved.'  This  new 
arrangement  has  not  been  successful.  It  has  balked 
the  railroads  in  the  avowed  attempts  to  control 
competition,  but  not  in  the  secret  attempts;  it  has 
prevented  the  Massachusetts  system  from  extending 
its  sphere  all  over  the  country,  and  thus  settling  the 
question  of  conflict  of  jurisdiction.  It  has  given  to 
the  central  government  powers  that  counteract  the 
real  opportunity  for  Federal  control,  but  which  are 
in  themselves  useless.  The  restoration  of  the  con- 
ditions existing  before  1887,  with  the  perfection  of 
a  closely-knit  system  of  State  and  National  Commis- 
sions co-operation  on  the  basis  of  the  Massachusetts 
Commission  is  the  surest  means  of  settling  the  rail- 
way question.  That  this  is  so  will  now  be  briefly 
shown. 

It  is  admitted  by  every  one  that  pooling  will  settle 
the  question  of  discrimination.  It  has  done  so  in 
the  past ;  the  reasons  for  its  success  have  been 
shown.  The  reason  why  the  public  does  not  ap- 
prove of  it  is  that  it  fears  that  it  will  create  great 
corporate  power,  infringe  the  rights  of  the  public  by 
putting  the  railroads  beyond  competition,  and  make 
it  harder  to  supervise  them.  These  fears  are  un- 
founded. Far  from  leading  to  the  growth  of  corpo- 
rate   power,    pooling   agreements   will    prevent    it. 

'  Interstate  Commerce  Commission.     Speech  of  Chas.  V.  Adams, 

18S8,  7. 


138    Railway  Control  by  Commissions 

Unless  railway  managers  can  associate,  railway 
owners  must  combine.'  The  pooling  association 
will  act  as  a  breakwater  against  the  so-called  rail- 
way trust.  Consolidation  will  be  worked  out  by 
co-operation.  The  dangerous  result  of  national 
consolidation  as  proposed  by  Lewis  and  Huntington 
will  be  avoided. 

The  apprehension  that  pooling  will  prevent  any 
but  the  desirable  kind  of  competition  is  unfounded. 
Instances  of  effective  competition  secured  by  pool- 
ing are  many.  Pooling  only  controls  competition. 
The  agreement  of  the  Southern  Railway  and  Steam- 
ship Association,  for  example,  was  renewed  yearly, 
and  most  of  the  contracts  for  division  of  business 
were  made  for  a  year  at  a  time.  Each  road  tried  to 
carry  as  much  freight  as  it  could,  so  that,  when  the 
next  contract  came  to  be  made,  it  might  with  some 
show  of  reason  demand  a  larger  share  of  the  busi- 
ness.'' It  is  competition  of  this  sort  that  is  advan- 
tageous, not  that  which  is  done  without  regard  to 
cost. 

Nor  is  it  true  that  pooling  makes  it  difificult  to 
control  the  roads;  it  is  the  prohibition  of  pooling 
that  does  this.  It  makes  agreements  secret  which 
were  before  public,  for  pooling  cannot  be  prevented. 
Hadley  believes  that  no  amount  of  government 
regulation  will  prevent  it^;  Meddaugh  believes  the 
Interstate  Commerce  Commission  a  lame  substi- 
tute,* and  Cook  believes  not  only  that  the  Interstate 

'Walker,  23.  ''Henry  Hudson,  94. 

"^Railway  Transportation,  1881. 

■*  Pub.  Mich.  Pol.  Science  Quart.,  May,  1893. 


The  Massachusetts  Commission     139 

Commerce  Commission  Act  fails  to  regulate  the 
railroads,  but  that  any  government  control  will  be 
ineffective.'  They  must  be  aided  by  railway  man- 
agers. These  men,  as  a  class,  are  of  a  superior  type, 
honest  and  public-spirited."  There  are  some  bad 
ones,  but  self-regulation  will  find  them  out.  They 
may  well  be  relied  upon  if  only  they  are  subjected 
to  publicity.  This  will  be  brought  about  most 
effectively  under  a  system  of  commissions  whose 
sole  business  it  is  to  keep  the  railroads  on  the  path 
of  progress,  which  is  unburdened  by  "  powers  "  and 
interstate  complications  of  jurisdiction  ;  which  stands 
in  the  position  not  of  an  angry  master,  but  of  a  can- 
did friend,  taking  a  firm  stand  in  the  middle  ground 
between  the  railways  and  the  public.  This  will  be 
done  by  the  substitution  of  the  power  of  arbitration 
for  quasi-judicial  powers  and  the  knitting  together 
of  the  whole  system  of  commissions  on  the  basis, 
not  of  arbitrary  power  but  of  brains,  hard  work, 
justice,  and  publicity.^  If  this  is  done,  the  railway 
problem  may  safely  be  allowed  to  work  itself  out. 
The  control  of  railways  by  commissions  is,  as  Dr. 
Adams  says,  the  truly  conservative  method  of  con- 
trol. The  Advisory  Commission  cannot  possibly  do 
harm.  "  If  it  succeeds,  we  may  look  for  a  solution 
of  all  the  vexed  industrial  problems  in  harmony  with 
the  fundamental  principles  of  English  liberty.  If  it 
fails,*  there  is  nothing  for  civilization  but  socialism." 

'  Cook,  The  Corporation  Problem. 

"  Lewis,  Preface. 

'See  J.  M.  Bonham,  Railway  Secrecy  and  Trust,  i. 

*  Pttb.  Mick.  Pol.  Science  Ass'n,  vol.  xliii. 


CHAPTER  X 

SWITZERLAND   AND   THE   STATE    PURCHASE   OF 
RAILWAYS 

THE  most  important  factor  in  the  development 
that  is  now  going  on  in  the  commercial  world 
is  the  annihilation  of  distance.  This  is  making  the 
world  of  the  individual  more  broad,  and  has  already 
secured  for  him  vastly  greater  opportunities  than 
were  before  within  his  reach.  Imperfect  realization 
of  this  by  the  many,  the  consequent  appropriation 
of  the  accruing  benefits  by  the  few,  and  the  unsatis- 
factory conditions  always  attendant  upon  great  pro- 
gress, make  its  full  effect  less  sensible.  Even  now,  a 
community  or  a  market  whose  distance  seventy  years 
ago  was  measured  by  months  is  within  reach  in  an 
equal  number  of  days  and,  for  some  purposes,  in  the 
same  number  of  minutes.  Less  than  half  a  century 
ago  the  earth  was  encircled  by  the  path  of  man  only 
in  the  imagination.'  Realization  of  prophecies  that 
have  long  been  in  the  air  now  seems  near  at  hand. 
Forty  years  ago,  Russia  had  almost  no  railways. 
Now  the  country  is  being  spanned  by  trunk  lines 
which  are  intended  to  form  but  one  system  in  the 
network  that  shall  encircle  the  world.  But  the 
building  of  a  great  railway  system  is  not  such  an 

'  La  Russie  et  les  Chemins  de  Fer  Russes,  12,  16.     Paris,  1857. 
140 


State  Purchase  of  Railways        141 

event  now  as  it  was  in  the  days  when  the  Pacific 
roads  were  hurried  to  completion.  This  is  not  be- 
cause the  railway  problem  has  shown  all  its  phases, 
and  grown  familiar  as  a  question  ready  for  settle- 
ment at  any  time.  On  the  contrary,  new  considera- 
tions present  themselves  with  every  new  venture, 
and  it  is  safe  to  say  that  the  conditions  of  railway 
control  will  no  more  be  stationary  in  the  next  gen- 
eration than  they  were  in  the  last.  The  opinion  of 
the  present  writer  is  that  countries  which  have 
already  assumed  control  of  railway  systems  have 
acted  prematurely,  and  that  their  experience  should 
be  closely  examined  by  States  contemplating  such 
assumption.  Whether  the  American  system  of 
"  unlimited  competition,"  as  Lecky  inaptly  terms 
it,  is  "  the  worst  possible,"  '  is  not  a  question  which 
the  present  can  decide.  We  must  wait  to  see  what 
other  systems  bring  forth.  It  may  be  found  that 
America  is  unconsciously  undergoing  present  sacri- 
fices which  will  make  possible  an  ultimate  satisfac- 
tory solution  of  the  railway  problem. 

Some  nations  are  making  these  sacrifices  deliber- 
ately. The  most  notable  example  is  that  of  France. 
A  good  account  of  this  is  given  by  Richard  von 
Kaufmann,  a  German  writer,  who  has  made  the  rail- 
ways and  the  finance  of  France  the  subject  of  special 
study.  He  says  that  at  the  time  when  the  French 
railway  system  will  revert  to  the  state  France  will 
possess  a  completed  system  second  to  none  in  the 
world,  absolutely  unburdened  by  indebtedness. 
The  price  which  the  state  is   now  paying  toward 

'  Lecky,  Democracy  ajid  Liberty,  vol.  ii.,  363. 


142    Railway  Control  by  Commissions 

this  future  benefit  is  the  advances  it  makes  to  the 
roads  in  guaranties  of  interest.  Von  Kaufmann 
estimates  that  the  necessity  for  paying  these  guar- 
anties will  cease  about  the  year  191 5.  From  that 
time  on,  payment  will  be  in  the  other  direction 
until  about  1950,  when  the  roads  escheat,  for  it  is 
thought  that  the  excess  of  earnings  over  current  in- 
terest and  construction  accounts  will  be  sufficient, 
after  191 5,  to  ensure  a  large  annual  repayment. 
The  aggregate  excess  up  to  1950  will  be  more  than 
1,200,000,000  francs,  and  will  cancel  all  the  accrued 
indebtedness  of  French  railway  property.  The 
government  will  be  able  to  make  reductions  in  taxes 
proportional  to  the  net  earnings  of  the  railways,  or 
to  moderate  the  price  of  transportation  so  that  it 
shall  cover  merely  the  cost.' 

The  writer  quoted  in  the  foregoing  paragraph 
asserts  that  the  railway  policy  of  his  own  country 
is  short-sighted  and  decidedly  inferior  to  that  of 
France.  As  a  matter  of  fact,  the  Germans  hope  to 
pay  off  the  railway  debt  in  their  own  way.  In  order 
to  make  the  roads  earn  taxes,  France  has  placed 
them  in  the  hands  of  private-venture  companies. 
The    rates   in    Germany,    von    Kaufmann    objects, 

^  Richard  von  Kaufmann,  Die  Eisenbahn politik  Frankreichs,  vol. 
ii.,  829.  This  work  of  fourteen  hundred  pages  purports  to  show 
that  the  French  system  as  developed  by  the  "  Conventions  of  18S3  " 
was  preconceived  in  the  beginnings  of  the  French  railway  policy  and 
consistently  pursued.  In  Germany  the  work  was  vigorously  attacked, 
particularly  in  official  circles.  The  author's  conception  is  opposed 
to  that  of  Gustav  Cohn,  who  maintains  that  circumstances  alone 
guided  the  policy  of  the  French  at  every  stage  of  railway  develop- 
ment. 


State  Purchase  of  Railways        143 

must  include,  in  order  to  make  a  net  profit  for  the 
government,  the  amount  the  state  would  receive 
from  private  companies  in  taxes.  The  German 
method  is  to  accumulate  the  current  profits,  and 
the  plan  seems  to  have  worked  successfully,  judged 
even  by  von  Kaufmann's  standard,  for  the  net 
profits  have  been  very  large.  The  two  nations  have 
the  same  end  in  view,  and  it  is  too  early  to  say  that 
the  method  of  the  one  nation  is  more  effective  than 
that  of  the  other.  Thus  far,  they  seem  to  have 
amounted  to  substantially  the  same  thing. 

In  imitation  of  the  policies  of  France  and  Ger- 
many, a  plan  was  adopted  in  1898  by  the  popular 
vote  of  a  nation  which  may  be  said  to  represent 
both  countries  in  miniature.  "  A  dwarf,"  said  a 
great  Swiss,  "is  no  less  a  man  than  is  a  giant."  ' 

The  tiny  Swiss  Republic  has  within  the  last  fifty 
years  made  very  valuable  experiments  in  the  organi- 
zation of  democracy,"  '  and,  in  view  of  the  federal 
nature  of  the  government,  and  the  attitude  of  the 
people  toward  public  questions,  this  experience  is 
peculiarly  interesting  to  Americans.  A  word  first 
as  to  the  conditions  peculiar  to  the  country  which 
make  the  railway  problem  the  affair  of  the  Swiss 
people. 

Owing  to  the  short  distances  to  be  traversed  in 
Switzerland,  the  use  to  which  is  put  each  of  the 
three  ways  of  communication — roads,  waterways, 
and    railways — seems    characteristic  of  the  nation. 

'  Vattel,  Le  Droit  des  Gens,  112,  liv.  iv.,  ch.  vi.,  §  78.  Paris, 
1820. 

'  Wuarin,  Pub.  Am.  Acad.  Pol.  Sc,  No.  158. 


144    Railway  Control  by  Commissions 

The  first  two  are  important  in  that  they  give  color 
to  the  railway  problem,  and  make  plainer  the  kind  of 
concern  which  the  Swiss  citizen  feels  in  its  solution. 

The  most  common  mode  of  travel  is  on  foot. 
Tramping  is  common  to  the  extent  of  being  a 
national  habit,  both  as  a  pastime  and  as  an  industry. 
The  valley  roads,  the  mountain  roads,  and  the 
mountain  paths  are  seldom  unfrequented.  All  ages 
and  both  sexes  take  up  the  "  fussgang  "  as  the 
ordinary  mode  of  recreation.  The  nature  of  the 
country  gives  it  all  the  charm  of  variety  that  could 
be  desired.  This  national  love  of  journeying  on 
foot  is  helpful  in  work  as  well  as  in  play.  Church- 
men tramp  from  station  to  station ;  markets  are 
within  walking  distance  of  both  buyers  and  sellers; 
and  workmen,  skilled  and  unskilled,  go  on  foot  from 
one  end  of  the  country  to  the  other,  from  places 
where  work  is  dull  to  places  where  employment  is 
plentiful,  and  thus  equalize  the  supply  and  demand 
of  the  labor  market.  The  highroad  is  the  local  rail- 
way of  Switzerland. 

There  are  two  reasons  for  this  extensive  use  of  the 
roads  in  Switzerland ;  first,  they  are  good ;  second, 
there  is  always  good  accommodation  at  the  end  of  a 
stage  in  the  journey.  The  inns  are  satisfactory  and 
cheap,  and  to  the  workman  in  search  of  employment 
free  accommodation  is  given  at  the  end  of  the  day, 
at  public  expense,  and  something  to  start  on  in  the 
morning.  These  highways  are  in  part  those  built  in 
Roman  times  ' ;  built  after  the  conquest  of  Helvetia, 

'  J.  Naeher,  Die  Romischer  Milita7-strasscn  und I/andfls'wege,  and 
liistorical  maps  therein.     Strassburg,  i88S. 


State  Purchase  of  Railways       145 

Germany,  and  Gaul.  Those  which  cross  the  Alps, 
although  well  constructed,  are  not  more  than  two 
and  a  half  to  three  metres  wide.  The  valley  roads 
from  the  Lake  of  Geneva  to  Lake  Constance  are 
much  wider.  The  other  wagon  roads  are  modern. 
The  total  length  of  Swiss  highways  is  16,000  kilo- 
metres,' and  Switzerland  may  easily  be  traversed 
from  end  to  end  on  foot  in  ten  days. 

Thanks  to  the  progress  of  steam,  the  abundance 
of  railways,  and  the  facility  of  transportation  by 
lake  and  navigable  watercourses,  the  major  part  of 
these  roads  are  now  of  local  interest.  In  1889  the 
lake  steamers  carried  about  four  million  passengers. 
For  this  service  there  were  about  ninety  steamers,* 
or  about  the  number  often  found  in  the  service  of  a 
single  American  company  at  the  present  day.  The 
service  of  the  waterways,  with  the  exception  of 
Lake  Constance,  is  entirely  internal,  and  is  not  of 
great  importance  as  compared  with  the  railways. 
A  very  small  part  of  the  commerce  of  Switzerland 
extends  beyond  the  continent  of  Europe.' 

Notwithstanding  the  mountainous  character  of 
Switzerland,  and  the  increased  cost  which  results 
from  the  obstacles  which  nature  presents,  the  re- 
public possesses  a  complete  network  of  railways  in 
which  almost  every  type  is  included.  There  are 
main  steam  trunk  lines,  narrow-gauge  lines,  cog- 
wheel   lines,    cable    mountain    lines,   and  street-car 

'  Dicciovario  Enciclopedico  Hispano- Americano,    tomo  xix.,    745. 
Barcelona,  1896. 
'  Ibid. 
^  See  figures  in  Annual  Encyclopedia,  1898,  713. 


146    Railway  Control  by  Commissions 

lines,  and  many  kinds  of  motive  power  are  repre- 
sented. There  is  a  total  length  of  4007  kilometres, 
or  2489.8  miles.'  The  average  cost  of  construction 
was  270,000  francs  per  kilometre,  but  to  this  must 
be  added  the  value  of  land  granted  free,  the  greater 
part  by  the  communes.''  The  completeness  of  the 
system  may  be  expressed  in  figures.  There  is  one 
mile  of  railroad  in  Switzerland  for  every  ten  square 
miles  of  territory.  More  roads  are  in  process  of 
construction,  and  important  additions  to  the  present 
system  have  been  provided  for. 

The  principal  railway  lines  are  five.     The  names, 
lengths,  and  dates  of  opening  are  as  follows  ": 


Name. 


Opening  of  the 
First  Part. 


Length. 


Nord-Est 

Suisse-Centrale 
Jura-Simplon  . . 
Union-Suisse  .  . 
Gothard 


Aug.  9,  1847. 

Aug.  2,  1875. 

May    7,  1855. 

Oct.  14,  1S55. 

Dec.  6,  1874. 


723  km. 

328  " 
928  " 
279  " 
276     " 


From  a  strategic  point  of  view,  the  most  import- 
ant line  is  the  Gothard.  For  transportation  the 
principal  lines  are  the  one  from  the  Lake  of  Geneva 
to  Lake  Constance,  by  way  of  Zurich  and  Berne,  and 
those  which  from  Bale  and  Schaffhouse  make  a 
junction  with  the  Gothard,  giving  communication 
between  Italy  and  the  North  of  Europe.  The 
other  lines  perform  subordinate  service;  that  is, 
they  serve  regions  or  localities." 


Consular  Report,  May  4,  iJ 
'  Consular  Report. 


"^  Diccionario,  xix.,  745. 
'^  Diccionario,  xi.\.,  745. 


State  Purchase  of  Railways        147 

These  are  the  five  roads  the  purchase  of  which  by 
the  government  has  for  a  long  time  been  an  issue 
upon  which  parties  have  divided  in  Switzerland.' 
Now  that  the  last  step  has  been  taken,  the  question 
bids  fair  to  create  thorough  discussion  wherever  in- 
terest in  social  movements  is  felt.  At  the  refer- 
endum of  February  20,  1899,  the  Swiss  people 
approved  this  step  by  the  overwhelming  majority 
of  368,634  to  182,718.'  It  remains  for  the  federal 
authorities  to  put  the  purchase  law  into  effect.  On 
February  22,  1898,  the  Federal  Council,  the  execu- 
tive head  of  the  Swiss  Confederation,  assumed  the 
franchise  rights  of  a  portion  of  the  lines  of  the 
Nord-Est.  If  the  purchase  is  executed  successfully, 
according  to  the  terms  of  the  several  franchises,  the 
federal  government  in  1903  will  have  come  into  pos- 
session of  the  Jura-Simplon,  the  Suisse-Centrale, 
the  Nord-Est,  and  the  Union-Suisse  systems,  and 
by  1909  into  the  possession  of  the  Gothard.  For 
the  purchase  of  the  Gothard,  negotiations  must  be 
made  with  Germany  and  Italy,  which  countries  fur- 
nished subsidies  for  the  construction  of  that  line. 
It  is  possible,  moreover,  that  the  government  may 
come  into  the  possession  of  the  railway  system  be- 
fore 1903,  if  it  decides  to  treat  with  the  companies 
by  effecting  special  mutual  agreements,  authorized 
under  the  law  providing  for  purchase.  In  the  ab- 
sence of  such  agreement,  and  in  event,  if  purchase 

'  Lowell,  Governments  and  Political  Parties  in  Continental  Europe, 
ii.,  213,  305. 

''The  figures  in  Q.  J.  E.  for  1898,  255  (384,  146  to  117,  130), 
appear  to  be  incorrect. 


148    Railway  Control  by  Commissions 

before  the  time  is  proposed,  of  any  disagreement 
with  the  companies  as  to  purchase  valuations,  the 
Federal  Court  will  be  appealed  to  for  a  determina- 
tion of  the  amount  of  indemnity  to  be  paid  to 
shareholders. 

It  will  be  interesting  to  see  what  measures  the 
federal  government  will  take  in  effecting  the  pur- 
chase of  the  railways,  in  procuring  the  necessary 
funds,  and  in  operating  the  roads.  It  will  be  espe- 
cially interesting  to  see  whether  or  not  the  state  will 
be  able  to  keep  the  promises  which  have  been 
made  in  its  name,  and  to  compare  private  opera- 
tion under  state  control  with  direct  operation  by 
the  state  in  a  democracy  like  Switzerland.  What 
these  promises  were,  and  the  course  of  events  which 
led  to  their  being  made,  will  now  be  shown.  In- 
formation on  this  matter  must  be  drawn  almost  en- 
tirely from  the  lucid  account  of  Micheli,  whose  work 
was  translated  from  the  French  by  Dr.  John  Cum- 
mings,  of  Harvard  University.' 

The  first  railroad  in  Switzerland — the  road  from 
Zurich  to  Baden,  twenty-three  kilometres  long — was 
opened  August  9,  1847.  It  was  built  by  a  private 
company.  The  state  soon  declared  its  intention  to 
act.  The  Federal  Assembly  voted,  September  18, 
1849,  to  request  the  Federal  Council  to  submit  a 
comprehensive  plan  for  a  railway  system.  Experts 
were  consulted.  The  Swiss  experts  were  divided  in 
opinion.  Some  favored  construction  by  companies, 
under  state  supervision,  with  guarantees  of  interest 

'  Horace  Micheli,  "State  Purchase  of  Railways  in  Switzerland," 
Econ.  Studies  A tn.  Econ.  Ass'n,  vol.  iii.,  No.  6,  Dec,  1898. 


State  Purchase  of  Railways       149 

from  the  state;  others,  and  their  opinion  was  shared 
by  the  majority  of  the  Commission  of  the  Council, 
favored  state  construction.  But,  although  those 
who  favored  state  construction  were  in  the  majority, 
and  were  reinforced  in  their  position  by  the  advice 
of  the  English  engineers,  Stephenson  and  Swin- 
burne, the  Council  went  to  the  opposite  extreme, 
excluding  all  co-operation  of  the  federal  government 
in  the  construction  of  railways,  not  reserving  even 
the  right  to  grant  franchises. 

This  right  was  given  to  the  cantons  by  the  law  of 
July  28,  1852,  but  was  transferred  to  the  federal 
government  in  1872,  by  a  law  which,  though  sup- 
plemented by  several  special  acts,  has  remained  in 
force  up  to  the  present  time.  It  appointed  for  every 
franchise  a  term,  at  the  end  of  which  the  road  might 
be  assumed  by  the  state.  The  periods  were  such 
that  the  question  of  state  assumption  might  come 
up  in  1883,  in  1898,  in  1903,  and  1909. 

The  occasion  of  considering  the  appropriation  of 
an  existing  railway  thus  arose  May  i,  1883.  At 
that  time  the  companies  were  not  prosperous.  The 
five  main  roads  paid  in  1882,  on  preferred  stock,  an 
average  dividend  of  4.8  per  cent. ;  on  common 
stock,  1.4  per  cent.  The  Nord-Est,  which  was 
subject  to  purchase  at  that  time,  paid  6  per  cent,  on 
preferred  stock  and  no  dividend  on  common  stock.' 
This  financial  condition  had  two  effects:  to  deter 
the  state  from  purchasing  the  road,  and  to  show  the 
need  of  closer  supervision.     A  law  was  passed  in 

'  J.  Steiger,  Die  Eisenbahnverstaatlichung  in  der  Schweiz,  2d  Ed., 
25.     Zurich,  1898. 


150    Railway  Control  by  Commissions 

1883    calling    for   regular   returns  and   accountings 
from  the  railways. 

The  government  was  not  satisfied  with  the  action 
which  circumstances  thus  compelled  it  to  take. 
Although  the  same  question  would  not  come  up 
again,  the  purchase  of  existing  railways  did  not 
cease  to  be  a  subject  for  debate,  and  there  was 
evolved  a  plan  for  controlling  the  roads  more  suited, 
perhaps,  to  the  modern  incorporated  company  than 
to  a  republic.  This  was  called  the  systeme  de  pene- 
tration. By  purchasing  sufificient  stock  in  the  com- 
panies the  state  proposed  to  "  insinuate  itself  "  into 
control  of  their  lines  of  railway,  perhaps  into  owner- 
ship. In  1889  the  Suisse-Occidentale  and  the  Jura- 
Berne-Lucerne  consolidated  into  one  company,  the 
Jura-Simplon,  which  became  the  most  important  of 
the  Swiss  railway  companies,  with  a  length  of  1000 
kilometres.  Upon  this  road  the  government  tried 
its  systeme  de  penetration,  and  very  soon  acquired  at 
an  advantageous  price  sufficient  stock  to  control  the 
company.  The  amount  necessary  for  this  purpose 
was  supposed  to  be  far  less  than  a  majority,  for  a 
general  law  prohibited  any  one  holder  to  vote  more 
than  one  fifth  of  the  shares.  This  law  of  course  did 
not  operate  against  the  executive  department  of  the 
government.  Encouraged  by  the  apparent  success 
of  the  plan,  the  Federal  Council  entered  in  1891  into 
negotiations  with  a  syndicate  of  bankers  for  the 
purchase  of  50,000  shares,  representing  one  half 
the  capital  stock  of  the  Suisse-Centrale,  at  1000. 
The  railway  company  immediately  offered  to  sell  its 
entire  system  at  this  handsome    premium,   against 


State  Purchase  of  Railways        151 

which  the  dividend  of  6.6  per  cent,  paid  in  1890 
seemed  a  small  consideration.  With  admirable  con- 
sistency the  Federal  Assembly  voted  an  acceptance. 
In  America  the  deal  would  have  been  rushed 
through,  but  what  Abraham  Lincoln  said  of  the 
people  is  much  more  true  in  Switzerland  than  any- 
where else.  This  is  by  virtue  of  a  weapon  given  by 
the  Constitution  of  1874  —  the  referendum.  Nearly 
92,000  citizens  demanded  that  the  question  be  sub- 
mitted to  popular  vote,  and  at  the  election  289,406 
voted  against  purchase,  130,729  in  favor  thereof. 
State  assumption  was,  therefore,  postponed,  and  the 
systenie  de  penetration,  the  failure  of  which,  where 
the  government  held  less  than  a  majority  of  the 
stock,  might  easily  have  been  foreseen,  received  a 
set-back  that  caused  its  abandonment  for  other 
methods. 

These  were  two.  The  first  was  expropriation ; 
the  second,  purchase  according  to  the  terms  of  the 
franchises.  Expropriation  was  not  accorded  much 
favor,  a  fact  which  speaks  well  for  public  honesty. 
For  the  state  to  plan  and  construct  a  system  of  rail- 
roads is  one  thing;  for  the  state  to  seize  without 
full  compensation  the  system  planned  by  individuals, 
and  entered  upon  at  their  risk,  is  quite  another,  and 
under  certain  conditions  may  deserve  the  name 
which  Lecky  gives  it — naked  robbery.^  The  other 
method  mentioned  above  was  adopted  in  1898.  It 
merits  for  this  reason,  if  for  no  other,  more  atten- 
tion. There  was  some  doubt  as  to  what  the  fran- 
chise meant.      It  was  construed  by  some  to  give  the 

'  Steiger,  25.  ^  Democracy  and  Liberty,  i.,  220. 


152    Railway  Control  by  Commissions 

government  the  option  of  purchasing  the  roads  be- 
fore expiration  of  the  term  of  concessions  or  at  the 
expiration.  Unless  by  the  expression  as  to  purchase 
at  the  expiration  of  the  concession  it  was  meant  that 
the  government  was  obliged  to  assume  the  roads  at 
that  time,  there  was  no  meaning  in  the  expression ; 
for  if  the  government  could  purchase  at  any  time 
up  to  and  including  the  date  of  expiration,  it  could 
certainly  purchase  at  the  expiration.  It  was  certain 
that  the  government  did  not  bind  itself  to  buy,  and 
it  was  just  as  certain  that  up  to  the  date  of  the  ex- 
piration of  each  road's  concession  it  was  free  to 
refuse  to  sell.     And  such  was  the  prevailing  opinion. 

Thus  Switzerland  had  until  1898,  when  the  next 
concession  was  to  expire,  to  decide  upon  a  policy. 
From  1894  onward  the  government,  the  railroads, 
and  the  people  made  admirable  preparation  for  the 
determination  of  the  important  question  of  the  pur- 
chase of  a  railroad  system  by  the  government,  a 
determination  which  should  not  be  made  hurriedly. 
When  it  was  found  that  the  systcme  de  penetration 
was  not  effective,  measures  were  taken  with  the 
avowed  purpose  of  making  it  so,  but  in  the  course 
of  events  this  purpose  was  lost  sight  of,  and  the 
systeme  was  modified  and  applied  to  state  purchase. 
This  will  be  illustrated  in  the  account  which  follows. 

In  1895  the  Federal  Council  proposed  a  law  which 
established,  as  a  prerequisite  to  voting  shares  of 
stock  in  railway  companies,  six  months'  registration 
of  the  certificates.  The  object  was  declared  to  be 
the  exclusion  of  foreign  influence,  but  the  avowal 
was  merely   diplomatic.      Foreigners  held  only  in 


State  Purchase  of  Railways       153 

blocks,  and  registration  was  worth  while  for  them. 
The  holdings  of  individuals  in  Switzerland  were  in 
small  numbers.  It  turned  out  that  the  Swiss  did 
not  register,  but  foreigners  did.  Thus  foreign  influ- 
ence was  increased  by  the  step.' 

As  a  matter  of  fact,  foreign  holdings  were  not 
large.  This  is  shown  by  an  explanation  of  the  fol- 
lowing table : 


In  Switzer- 
land. 

Outside. 

Unregis- 
tered, 

Jura-Simplon 

147,844 
31,427 
14,050 
20,818 

33,226 
37,100 
20,414 

8,082 

168,530 

Nord-Est 

91,473 

Suisse-Centrale 

Union-Suisse 

65,536 
51,100 

Gothard 

214,139 
1,347 

98,822 
26,347 

376,639 
72,306 

The  shares  of  the  Gothard  should  not  be  counted, 
since  the  road  was  from  the  beginning  almost  exclu- 
sively an  international  enterprise.*  This  is  shown 
by  its  history,  which  may  be  briefly  told  here.  The 
first  part  of  the  line  was  opened  December  6,  1874.' 
In  June,  1877,  an  international  conference  was  held 
in  Lucerne  to  consider  the  question  of  continuing 
work  on  the  St.  Gothard  Tunnel.  The  commission 
fixed  the  sum  required  to  complete  the  undertaking 
at  40,ocK),ocx)  francs,  of  which  they  proposed  that 
Germany  should  contribute  10,000,000,  Italy  10,- 
000,000,  Switzerland  8,000,000,  and  the  company 
12,000,000  francs.*     In  the  latter  part  of  June,  1878, 


'  Micheli.  '  Steiger. 

*Am.  Encyc,  i8tj,  706. 


2  Consular  Report. 


154  Railway  Control  by  Commissions 

the  Federal  Council  resolved  to  submit  to  the  Fed- 
eral Assembly  this  project  for  a  national  subvention 
to  the  Gothard  Railway  of  6, 5(X),ooo  francs.  The 
remaining  1,500,000  francs  would  be  provided  by 
the  Northern  and  Central  Railway  Company,  and 
no  call  would  be  made  on  individual  cantons.  The 
Assembly  met  July  29th  after  adjournment,  and 
took  up  the  question  submitted.  They  ratified  it.* 
The  project  was  carried  out  on  the  basis  proposed. 
International  complications  will  give  this  transaction 
importance  when  the  Swiss  Confederation  actually 
purchases  the  Gothard  Railway,  but  the  number  of 
shares  in  the  capital  stock  of  this  road  held  by 
foreigners  has  no  place  in  a  fair  estimate  of  foreign 
influence  in  roads  wholly  Swiss.  We  may  exclude, 
therefore,  the  shares  of  the  Gothard  from  our  calcu- 
lation. In  the  case  of  the  other  companies,  foreign 
influence  is  not  such,  when  compared  with  the  total 
number  of  shares,  as  to  warrant  the  new  law  on  reg- 
istration. This  IS  the  opinion  of  Dr.  Steiger.  The 
376,639  unregistered  shares  show  the  effect  of  the 
new  law  on  the  voting  power  of  shares  held  by 
the  government.  Most  of  them  were  probably  held 
in  Switzerland."  The  foreign  influence  argument 
does  not  bear  examination. 

The  real  motive  and  the  actual  effect  of  the  regis- 
tration law  was  to  increase  the  influence  of  the  gov- 
ernment. The  object  was  not  necessarily  to  continue 
the  systcme  de  pindtratiori,  but  rather  to  strengthen 
the  position  of  the  state  with  a  view  to  the  pros- 
pective purchase. 

'^  A??i.  Encyc,  1878,  776.  ^  Steiger,  169. 


State  Purchase  of  Railways       155 

Another  step  in  the  same  direction  was  taken  by 
making  votes  of  shareholders  and  acts  of  adminis- 
trative boards  subject  to  revocation  by  the  Federal 
Council.  A  part  of  this  device  was  to  give  the 
government  representation  in  these  boards. 

The  decisive  move,  however,  was  the  imposing 
upon  the  roads  of  the  duty  of  making  separate 
statements  for  each  of  their  lines,  and  defining  ac- 
curately the  two  spheres  of  earnings  and  capital. 

The  purpose  of  the  requirement  mentioned  in  the 
foregoing  paragraph  was  not  a  hidden  one.  There 
was  proposed,  November  ii,  1895,  a  bill  fixing  the 
price  of  purchase  of  the  roads,  whenever  determined 
upon,  at  twenty-five  times  the  average  annual  net 
earnings  during  the  ten  years  immediately  preceding 
notification  given  by  the  government  of  its  inten- 
tion to  purchase.  Hence  the  requirement  as  to 
accounts,  and  the  precaution  against  over-estimation 
of  net  earnings  or  under-estimation  of  the  basis 
upon  which  earnings  were  reckoned,  namely,  in- 
vested capital. 

The  law  embodying  these  provisions  was  ratified 
by  the  people  October  4,  1896.  It  is  called  la  loi  stir 
la  comptabilit^  des  cheniins  de  fcr.  The  expression 
is  aptly  rendered  by  Dr.  Cummings  "  the  auditing 
law  of  1896."  The  vote  upon  this  law  was  close, 
but  the  way  was  finally  opened  thereby  to  state  pur- 
chase, and  the  government  had  its  bargain  ready  to 
conclude.  The  railroads  were  not  prepared  for  this, 
but  they  did  make  preparation  towards  appeal.  The 
preparations  were  abandoned,  however,  lest  resist- 
ance to  the  inevitable  make  the  inevitable  worse. 


156    Railway  Control  by  Commissions 

The  die  was  cast.  The  Federal  Council  laid  be- 
fore the  Federal  Assembly,  March  25,  1897,  a  bill 
providing  a  plan  of  purchase  and  operation  by  the 
government  which  should  include  the  five  main 
lines,  leaving  to  private  companies  only  a  few 
standard  -  gauge  lines  of  secondary  importance. 
Some  narrow-gauge  roads  and  some  mountain 
roads  were  included  in  the  roads  to  be  left  in 
private  hands.  Each  railroad  proposed  for  pur- 
chase was  to  be  taken  by  the  government  at  the 
earliest  date  contemplated  in  its  franchise. 

The  foregoing  paragraph  gives  the  project  in  a 
nutshell.  Its  simplicity  is  seductive,  but  the  history 
of  the  bill  shows  the  expansion  of  which  the  discus- 
sion of  a  seemingly  simple  plan  is  capable.  The 
course  of  the  project  is  traced  in  all  its  stages  in  the 
account  of  Micheli.  For  a  comprehensive  and  well- 
arranged  presentation  of  the  argument  for  and 
against  the  bill,  reference  is  made  to  that  work. 
Mention  may  also  be  made  of  the  pamphlets  of  M. 
Numa  Droz,'  ex-President  of  the  Swiss  Confedera- 
tion, and  of  the  work  of  Dr.  Steiger  cited  herein. 

The  little  book  of  Dr.  Steiger  is  said  to  have 
created  a  veritable  sensation  in  Switzerland.  Like 
Droz,  he  takes  the  point  of  view  of  the  economist. 
He  deprecates  the  step  as  an  important  one,  taken 
rashly  and  without  a  proper  understanding  of  the 
situation.  State  purchase  in  Switzerland,  he  says, 
is  an  attempt  to  imitate  French  and  German  railway 
policies  by  men  who  do  not  understand  the  essential 
features  of  those  policies. 

'  Bibl.  du  Mus^e  Sociale,  No.  E.  8455. 


State  Purchase  of  Railways        157 

The  real  conflict  in  Switzerland  is  not  political, 
economic,  or  peculiar  to  Switzerland.  It  has  been 
fought  out  in  England,  in  France,  and  more  recently 
in  Germany.  Austria  has  the  struggle  yet  to  make, 
and  America  must  yet  make  a  final  grapple  with  the 
problems  that  arise  from  an  attempt  to  maintain 
one  government  to  serve  two  masters.  In  Switzer- 
land, as  in  America  and  elsewhere,  it  was  not  a  con- 
flict of  argument,  but  of  tendencies.  On  the  one 
side  was  the  desire  for  progressive  unification,  on 
the  other  was  the  purpose  to  preserve  to  the  cantons 
the  rights  given  to  them  under  the  Constitution  of 
1874.  The  people  broke  down  artificial  local  bar- 
riers, and  the  victory  was  decisive  and  complete.' 

The  changes  which  the  law  underwent  in  its  course 
from  the  Federal  Council  to  the  referendum  were 
unimportant.  They  were  in  the  nature  of  conces- 
sions made  to  the  voters  of  districts  in  return  for 
their  support.  It  was  the  people  of  the  cantons 
negotiating  directly  with  the  central  government. 
To  satisfy  the  districts  in  the  southern  part  of  Swit- 
zerland, bordering  on  Italy,  the  government  engaged 
to  continue  the  line  of  the  Jura-Simplon  Company, 
and  to  carry  out  the  work  of  building  the  Simplon 
Tunnel,  provided,  of  course,  that  the  subsidies, 
to  be  furnished  by  the  Swiss  cantons  and  munici- 
palities and  by  the  Italian  Government,  should  be 
transferred  to  the  Swiss  Government.  To  West 
Switzerland    was   given    a    guarantee    that   a   pass 

'  The  significant  title  employed  by  M.  Taillichet,  the  director  of 
the  Bibliotheque  Universelle,  is  "  Le  peuple  Suisse  doit-il  acheter 
les  chemins  de  fer."  —  Bibl.  du  Miis^e  Sociale,  No.  8456. 


158  Railway  Control  by  Commissions 

should  be  made  across  the  Alps  of  the  West.  And 
to  St.  Gall  was  given  a  promise  that  the  Ricken  line, 
for  which  there  had  been  great  demand,  should  be 
built  without  delay.  The  burdens  assumed  by  virtue 
of  these  concessions  were  not  great. 

The  bearing  of  all  that  has  been  discussed  in  this 
chapter  upon  the  main  subject  of  this  book  is  direct 
and  important.  A  small  republic,  with  a  federal 
government,  meeting  the  railway  problem  squarely, 
and  bringing  out  a  definitive  unequivocal  solution, 
presents  an  ideal  object-lesson.  The  character  of 
the  people,  the  similarity  of  their  institutions  with 
those  of  America,  and  the  freedom  from  complica- 
tions which  the  Swiss  situation  offers — all  the  condi- 
tions, in  fact,  attendant  upon  Swiss  experience — 
promise  the  development  of  a  precedent  which  may 
be  appealed  to,  according  as  the  trial  turns  out  well 
or  ill,  by  American  statesmen  of  the  future  without 
fear  of  contradiction.  And  even  in  the  present,  two 
lessons  are  plainly  taught.  The  first  is,  that  in  a 
democracy  industry  leads  abstract  principle,  and 
does  not  follow.  The  second  is,  that  the  great 
object  of  desire  in  railway  control  is  to  bring  the 
people  as  closely  into  touch  with  the  industry  as  is 
consistent  with  its  free  development.  These  will 
be  given  point  briefly  and  in  order. 

When  railroad  enterprise  was  first  awakened  in 
Switzerland,  the  central  government  decided  that  it 
was  the  concern  of  the  cantons  that  railroads  should 
be  built,  and  to  them  was  left  the  power  and  duty 
of  granting  franchises.  Later  it  was  found  that  this 
power  and  duty  properly  pertained  to  the  central 


State  Purchase  of  Railways       159 

ffovernment.  And  still  later  it  was  decided  that  the 
railroads  belonged  not  to  districts  but  to  the  people 
of  the  districts,  and  that  the  best  representative  of  all 
the  people  of  all  the  districts  in  matters  of  trans- 
portation was  the  most  extensive  and  most  powerful 
government  in  the  land.  It  is  safe  to  say  that  the 
essential  character  of  the  Swiss  system  of  govern- 
ment has  already  been  changed  vitally  in  an  import- 
ant sphere,  and  that  it  will  be  changed  further  until 
the  government  adapts  itself  to  the  needs  of  industry. 
The  application  of  this  lesson  to  the  United  States 
is  neither  new  nor  hazardous. 

And  the  reasoning  ventured  above  is  given  force 
by  a  consideration  of  the  second  lesson.  It  is  illus- 
trated by  an  account  of  the  modification  made  in 
the  plan  for  railway  control  under  the  new  system. 
The  final  scheme  is  as  follows:  Control  is  divided 
between  five  bodies  :  the  Federal  Assembly,  the 
Federal  Council,  an  Administrative  Council  com- 
posed of  fifty-five  members,  five  Local  Boards  of 
Directors,  one  for  each  of  the  five  railway  divisions 
of  the  country,  and  District  Councils,  one  for  each 
district,  composed  of  from  fifteen  to  twenty  mem- 
bers. The  method  of  election  to  the  three  new 
bodies  is  as  follows.  The  members  of  the  Adminis- 
trative Council  are  chosen,  twenty-five  by  the  can- 
tons, twenty-five  by  the  central  government,  five 
by  the  new  Boards  of  Directors.  These  boards  are 
determined  by  existing  conditions,  for  there  is  one 
for  each  of  the  five  divisions — Bale,  Berne,  Lucerne, 
St.  Gall,  and  Zurich — and  each  city  is  the  head- 
quarters  of    one    of   the   great   railway   companies. 


i6o    Railway  Control  by  Commissions 

The  members  of  the  Local  Councils  are  appointed, 
four  by  the  Federal  Council,  the  rest  by  the  cantons, 
comprised  in  the  districts  respectively.  This  organi- 
zation, which,  though  apparently  favorable  to  the 
cantons  as  such,  is  in  reality  highly  centralized  after 
the  manner  of  the  German  system.  There  is  a  con- 
stituted body  lacking  in  the  system  which  we  should 
expect  to  find  after  the  vigorous  attempts  of  Swiss 
democracy  to  get  into  close  touch  with  railway  mat- 
ters. There  should  have  been  provided,  one  would 
say,  to  complete  the  democratic  system,  a  railway 
council  to  consist  of  one  member  for  every  fifty 
thousand  inhabitants,  to  be  named  by  the  cantons, 
and  to  serve  three  years,  making  a  membership  of 
about  sixty,  with  power  to  debate  and  to  suggest. 
Such  a  body  was  provided  for  in  the  original  bill, 
and  the  thought  was  that  the  people  would  not  be 
afraid  of  centralization  of  government  if  their  repre- 
sentation was  direct  and  their  interests  could  be  as- 
serted. The  plan  for  the  council  was  based  upon 
the  idea  of  the  advisory  commission,  and  its  opinions 
were  in  no  way  binding  upon  the  agencies  of  admin- 
istration. Its  purpose  was  to  bring  the  people  nearer 
to  the  government  and  to  give  publicity.  But  this 
was  superfluous,  for  the  people  are  already  in  suflfi- 
ciently  close  touch,  and  so  long  as  the  government 
does  not  err,  the  people  will  not  interfere  with  rail- 
way management  by  the  authorities.  In  case  of 
need,  they  have  an  advisory  commission  at  their 
command,  for  the  Railway  Commission  in  Switzer- 
land is  the  referendum. 

Whatever  the  economic  effect  of  the  purchase  of 


State  Purchase  of  Railways       i6i 

the  roads,  the  people  have  not  committed  the  roads 
irrevocably  to  the  government,  and  they  certainly 
have  not  forced  railway  management  to  secrecy  and 
falsification.  The  control  which  does  control  lies 
with  an  interested,  well-informed  public,  and  this 
Switzerland  has  not  sacrificed. 


THE    END 


UNIVERSITY  OF  CALIFORNIA,  LOS  ANGELES 

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QUESTIONS   OF    THE   DAY. 


AUTHOR    INDEX    TO   THE 
"QUESTIONS   OF   THE    DAY"  SERIES. 


Alexander,  E.  P.,  No.  36 

Allen,  J.  H.,  No.  53 
Atkinson,  E.,  No.  40 
Bagehot,  W.,  No.  28 
Baker,  C.  W.,  No.  59 
Blair,  L.  H.,  No.  35 
Bourne,  E.  G.,  No.  24 
Codnian,  J.,  No.  64 
Cowles,  J.  L.,  No.  Sg 
Dabney,  W.  D.,  No.  60 
Devlin,  T.  C,  No.  90 
Dos  Passes,  J.  R.,  No.  38 
Dugdale,  R.  L. ,  No.  14 
Ehrich,  L.  R.,  No.  70 
Elliott,  J.  R.,  No.  62 
Foote,  A.  R.,  No.  82 
Foulke,  W.  D.,  No.  43 
Gardiner,  Chas.  A.,  Nos.  92,  93 
Giffen,  R.,  No.  20 
Gordon,  A.  C,  No.  85 
Hall,  B.,  No.  71 
Hitchcock,  H.,  No.  37 
Jacobi,  M.  P.,  No.  80 


Jones,  W.  H.,  No.  39 
Juglar,  C.,  No.  75 
Lawton,  G.  W. ,  No.  25 
Lowell,  J.  S.,  No.  76 
Palm,  A.  J.,  No.  66 
Phelps,  E.  J.,  No.  87 
Putnam,  G.  H.,  No.  67 
Remsen,  D.  S.,  No.  77 
J<ogers,  J.  E.  T.,  No.  23 
Schoenhof,  J.,  Nos.  9,  30,  73,  86 
Schurz,  Carl,  No.  87 
Shearman,  Thos.  G.,  Nos.  71,  83 
Sherman,  Hon.  P.,  No.  65 
Shriver,  E.  J.,  No.  63 
Stokes,  A.  P.,  No.  79 
Storey,  M.,  No.  58 
Strange,  D.,  No.  72 
Swan,  C.  li..  No.  91 
Taussig,  F.  W.,  Nos.  47,  74 
Tourgee,  A.  W.,  No.  88 
Tyler,  L.  G.,  No.  68 
Wells,  D.  A.,  Nos.  54,  64,  71,  87 
Wheeler,  E.  P.,  No.  84 


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